Hawai’i’s economy darkens as surging oil prices increase consumer costs, UHERO report forecasts

The latest forecast shows Hawaiʻi’s economy is facing a new wave of uncertainty as the war involving Iran drives up global oil prices, increasing costs for consumers, raising travel expenses and slowing growth in key visitor markets.

These emerging challenges come as the state continues to recover from significant damage caused by the March Kona Low storms and from an ongoing sluggish labor market, according to the University of Hawaiʻi Economic Research Organization’s second quarter forecast for 2026.

While a recession is still considered unlikely, UHERO economists say the near-term outlook for Hawaiʻi has “worsened noticeably.”

The report laid out its baseline assumption for oil prices and the Hawai‘i economy, as well as a pessimistic alternative projection.

The baseline forecast sees the spot oil price peaking in the current quarter at about $119 per barrel, near its current level, and then receding to $88 per barrel by the second quarter of next year.

The report’s pessimistic scenario sees oil averaging $170 per barrel in the current quarter and $138 per barrel for 2026 overall.

“This much higher oil price path is considered less likely than the baseline and might occur if the depletion of oil reserves further reduces oil supply and the conflict continues well into the summer,” the report states.

As a result of the surging prices, Hawaiian Electric informed customers that residential bills would rise 20-30%, hitting O‘ahu in April, Hawai‘i Island in May, and Maui County in June.

One of the key takeaways in the report was that the war in Iran has upended what had been an improving U.S. outlook.

“Federal tax cuts were poised to support consumer spending and business investment, but higher oil prices will offset much of these gains,” according to the report. “UHERO now projects U.S. growth of 1.7% for 2026, with inflation running at 4% for the year. Japan and other Asian oil-dependent economies face the sharpest pressures, and Canada remains weakened by trade tensions with the U.S.”

While the report does point to modest job growth, Hawaii County will post a net job decline for 2026 overall, but this reflects, in part, losses in tourism-related sectors and several others that occurred late last year and therefore represent a low starting point for this year’s forecasts.

Construction and health care remain the bright spots statewide. Overall payrolls will be essentially flat this year, with tourism-linked sectors hit hardest by the oil shock.

Real labor income will be unchanged as price increases outpace wage gains.

Hawaiʻi’s visitor industry entered 2026 with momentum before the March storms caused a sharp drop in passenger counts. Conditions have since weakened as jet fuel prices surged, driving up transpacific airfare and prompting some airline capacity cuts.

There are some differences in the visitor industry forecast across the four counties. After two years of weak US market performance, Hawaii County will see gains in 2026, reinforced by an uptick in the number of Japanese visitors.

The housing market remains soft. The median single-family price has held near $1 million for seven months, but resales are slow and condominium prices continue to slip.

Insurance premiums, already up 13% since the Maui wildfires, may face further increases following the March storms, exacerbating historically poor affordability.

Read the entire UHERO report here.