‘The stakes are enormous’: how a prolonged Iran war could shock the global economy

## Summary
Donald Trump’s comments about the Iran have induced a ‘fog of war’, economists said Composite: Guardian Design View image in fullscreen Donald Trump’s comments about the Iran have induced a ‘fog of war’, economists said Composite: Guardian Design ‘The stakes are enormous’: how a prolonged Iran war could shock the global economy Donald Trump’s ‘little excursion’ is likely to have long-term effects, from oil prices to inflation to growth, say experts In the days after the US and Israel first bombed Iran, financial markets bet the economic fallout from Donald Trump’s “ little excursion ” in the Middle East would be short-lived. “There are risks from higher oil prices longer term. Trump has declared the war “won”, while also saying it could end “soon”, or might need to go “further” – adding a layer of uncertainty for global markets and the world economy that contrasts with the situation on the ground. Forecasters say a prolonged conflict could resemble past global economic crises. “Surging oil and gas prices are harbingers of economic trouble,” said Ian Stewart, the chief economist in the UK at the accountancy firm Deloitte. “Higher energy prices, triggered by war or revolution in the Middle East, were important factors in western recessions in 1973, 1979 and 1990. “The surge in energy prices in the wake of Russia’s invasion of Ukraine collapsed Europe’s growth rate in 2023.” The clearest parallels, however, are with the 1980s. Analysts say global manufacturing supply chains could be hit as a consequence – from the production of cars to electronics. “Fossil fuels and petrochemical feedstocks run through the deep plumbing of the modern economy,” analysts at Société Générale wrote in a note to clients. “The stakes of this conflict are enormous for the global economy. “If the strait of Hormuz remains effectively blocked for months, disruptions to supply chains beyond energy – from food to semiconductors – will become so critical that the risk of a scenario akin to the Covid plus Russia-Ukraine shock would be hard to rule out.” Gulf gas field map Alongside higher inflation, economic growth is expected to be dragged down worldwide.

## Article Content
Donald Trump’s comments about the Iran have induced a ‘fog of war’, economists said
Composite: Guardian Design
View image in fullscreen
Donald Trump’s comments about the Iran have induced a ‘fog of war’, economists said
Composite: Guardian Design
‘The stakes are enormous’: how a prolonged Iran war could shock the global economy
Donald Trump’s ‘little excursion’ is likely to have long-term effects, from oil prices to inflation to growth, say experts
In the days after the US and Israel first bombed Iran, financial markets bet the economic fallout from Donald Trump’s “
little excursion
” in the Middle East would be short-lived.
“There are risks from higher oil prices longer term. But this is a tail risk,” one US-based fund manger said after the airstrike killing Iran’s supreme leader,
Ayatollah Ali Khamenei
. “History has shown time and time again that geopolitical flare-ups like this tend to be short-lived. This one should prove to be no exception.’’
Goldman Sachs told clients it expected temporary disruption. “Oil prices to decline throughout the year. But risks are skewed to the upside,” its analysts wrote. UniCredit suggested crude would be capped at about $80 a barrel. “Given its struggle for survival, the Iranian regime has an incentive to keep its response measured”.
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Three weeks later, the prospect of a drawn-out war is causing mounting economic problems. Oil prices have soared above $100 a barrel, European gas prices have doubled, volatility stalks financial markets, and consumers worldwide are bracing for a surge in living costs. Central banks, including the US Federal Reserve,
Bank of England
and European Central Bank, warn the war could have a material impact on inflation and dent global growth.
“Market wisdom still holds that the war will end quickly, with the strait of Hormuz soon to reopen,” said Albert Edwards, a senior analyst at Société Générale. “Maybe the market is right, but in my opinion the risks are asymmetric that stagflation bursts the complacency bubble.”
With each day, more problems are emerging. From the soaring price of petrol and diesel for motorists, to cancelled flights and the worst travel disruption since the Covid pandemic.
View image in fullscreen
The cost of fertiliser is rising sharply, hurting farmers worldwide.
Photograph: Aly Song/Reuters
European heavy industry – still reeling from the 2022 energy price shock after the Russian invasion of Ukraine – are
feeling the pinch
in particular. Huntsman
told the Guardian
its Teesside plant in the north-east of England is at risk, Germany’s BASF, the world’s largest chemicals firm, is putting up prices. The cost of fertiliser – an important byproduct of the petroleum industry – is rising sharply, hurting farmers worldwide and laying the groundwork for a sharp rise in food prices.
The war in Iran is ripping up the Gulf’s plan for stability | Sanam Vakil
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Iran has threatened to send oil to $200 a barrel through its fightback, targeting shipping through the narrow seaborne passage between its southern shore and Oman, as well as refineries and pipelines across the Middle East.
Iranian missiles hit Ras Laffan
, an important Qatari liquefied natural gas (LNG) processing facility, leading analysts to warn that energy markets are now on the road to a
“doomsday” scenario
.
In Washington DC, the message has been mixed. Trump has declared the war “won”, while also saying it could end “soon”, or might need to go “further” – adding a layer of uncertainty for global markets and the world economy that contrasts with the situation on the ground.
Oil price chart
Against this backdrop, businesses and investors are increasingly at a loss how to respond. Barclays compared the president’s comments to a 19th century-style “fog of war”, fuelling violent market swings. “A dense fog has been induced by the communication about the war: its objectives, its duration, its potential expansion and/or its off-ramps,” its analysts wrote.
Forecasters say a prolonged conflict could resemble past global economic crises. “Surging oil and gas prices are harbingers of economic trouble,” said Ian Stewart, the chief economist in the UK at the accountancy firm Deloitte. “Higher energy prices, triggered by war or revolution in the Middle East, were important factors in western recessions in 1973, 1979 and 1990.
“The surge in energy prices in the wake of Russia’s invasion of Ukraine collapsed Europe’s growth rate in 2023.”
The clearest parallels, however, are with the 1980s. Back then, Ronald Reagan sent US warships to Hormuz to protect merchant shipping during the Iran-Iraq war. In an episode that became known as the “tanker war”, Washington dispatched the largest naval convoy since the second world war to keep oil and gas exports flowing.
Four decades ago Tehran and Baghdad knew that targeting Hormuz would draw US involvement. By threatening western economic interest

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## Expert Analysis

### Merits
- The cost of fertiliser – an important byproduct of the petroleum industry – is rising sharply, hurting farmers worldwide and laying the groundwork for a sharp rise in food prices.
- Iranian missiles hit Ras Laffan , an important Qatari liquefied natural gas (LNG) processing facility, leading analysts to warn that energy markets are now on the road to a “doomsday” scenario .
- Forecasters say a prolonged conflict could resemble past global economic crises. “Surging oil and gas prices are harbingers of economic trouble,” said Ian Stewart, the chief economist in the UK at the accountancy firm Deloitte. “Higher energy prices, triggered by war or revolution in the Middle East, were important factors in western recessions in 1973, 1979 and 1990. “The surge in energy prices in the wake of Russia’s invasion of Ukraine collapsed Europe’s growth rate in 2023.” The clearest parallels, however, are with the 1980s.
- Saudi Arabia, an important US ally, exports the most through the tiny passage, followed by the United Arab Emirates.

### Areas for Consideration
- But this is a tail risk,” one US-based fund manger said after the airstrike killing Iran’s supreme leader, Ayatollah Ali Khamenei . “History has shown time and time again that geopolitical flare-ups like this tend to be short-lived.
- Huntsman told the Guardian its Teesside plant in the north-east of England is at risk, Germany’s BASF, the world’s largest chemicals firm, is putting up prices.
- Analysts say global manufacturing supply chains could be hit as a consequence – from the production of cars to electronics. “Fossil fuels and petrochemical feedstocks run through the deep plumbing of the modern economy,” analysts at Société Générale wrote in a note to clients. “The stakes of this conflict are enormous for the global economy. “If the strait of Hormuz remains effectively blocked for months, disruptions to supply chains beyond energy – from food to semiconductors – will become so critical that the risk of a scenario akin to the Covid plus Russia-Ukraine shock would be hard to rule out.” Gulf gas field map Alongside higher inflation, economic growth is expected to be dragged down worldwide.

### Implications
- Donald Trump’s comments about the Iran have induced a ‘fog of war’, economists said Composite: Guardian Design View image in fullscreen Donald Trump’s comments about the Iran have induced a ‘fog of war’, economists said Composite: Guardian Design ‘The stakes are enormous’: how a prolonged Iran war could shock the global economy Donald Trump’s ‘little excursion’ is likely to have long-term effects, from oil prices to inflation to growth, say experts In the days after the US and Israel first bombed Iran, financial markets bet the economic fallout from Donald Trump’s “ little excursion ” in the Middle East would be short-lived. “There are risks from higher oil prices longer term.
- This one should prove to be no exception.’’ Goldman Sachs told clients it expected temporary disruption. “Oil prices to decline throughout the year.
- Central banks, including the US Federal Reserve, Bank of England and European Central Bank, warn the war could have a material impact on inflation and dent global growth. “Market wisdom still holds that the war will end quickly, with the strait of Hormuz soon to reopen,” said Albert Edwards, a senior analyst at Société Générale. “Maybe the market is right, but in my opinion the risks are asymmetric that stagflation bursts the complacency bubble.” With each day, more problems are emerging.
- Trump has declared the war “won”, while also saying it could end “soon”, or might need to go “further” – adding a layer of uncertainty for global markets and the world economy that contrasts with the situation on the ground.

### Expert Commentary
This article covers war, global, oil topics. Notable strengths include discussion of war. Areas of concern are also raised. Readability: Flesch-Kincaid grade 0.0. Word count: 2068.