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No Matter Who Wins the Iran War, the Global Economy Is Losing
The most vulnerable populations of the Global South are suffering ever-increasing distress, while most of the world has been experiencing rising inflationary pressures and increasing interest rates on government bonds.
May 26, 2026
For all the uncertainty about what will happen next on the military and diplomatic front in the Iran war, there is certainty about what has already happened on the economic front. And it is not good.
The world has seen a spike in oil prices that has been moderated so far by large drawdowns in global oil reserves. In addition, the most vulnerable populations of the Global South are suffering ever-increasing distress, while most of the world has been experiencing rising inflationary pressures and increasing interest rates on government bonds. And even if the US stock market appears relatively unperturbed, a version of this unpleasant mix has also hit the United States.
Global oil prices are much higher than they were before the war, with the financial market benchmark price of Brent crude late last week (down to $91 on weekend news of a possible deal), well above the $60 per barrel of early January. That said, crude prices have been relatively stable within a broad range over the last two months despite a dramatic drop in energy shipments out of the Persian Gulf since the war began.
According to the International Energy Agency (IEA), as of May 13, the cumulative shortfall in global oil deliveries from the Gulf was roughly 1 billion barrels. This shortfall has been absorbed by reduced oil demand (a consequence of higher prices); increased production outside the Gulf; and by a drop in global oil inventories of roughly 250 million barrels, as these were released to hold down prices in the absence of new production from the Gulf coming to the market. However IEA head Fatih Birol warned last week that inventories were dropping at an unsustainable pace, particularly with summer driving season approaching in the Northern Hemisphere.
For all that US energy exporters might benefit from higher global oil prices, US consumers do not.
The biggest shock from the higher cost (and outright shortage) of fuel, petrochemicals, and fertilizers is being felt by the poorest in the Global South. A recent story in The New York Times described how the price for transporting corn into refugee camps in Somalia had doubled or even tripled, as had the price of water at diesel-powered public tubewells. Meanwhile, protests this week in Kenya against fuel price hikes have led to four deaths, and political and financial stresses are mounting across the continent.
In India, sharp jumps in the price of Liquid Petroleum Gas have hit urban households hard, particularly those whose breadwinners work in small-scale industrial establishments. Many such enterprises rely on LPG as fuel and have shut down, displacing a workforce composed of recent migrants from the countryside. And because informal migrant workers in the city do not have access to India’s price-controlled public distribution systems, they have been forced to purchase cooking fuel on the black market at exorbitant rates. The combination has sparked fears of a repeat of a mass return to the countryside, as happened in the Covid-19 summer of 2020.
Stories like these abound across the Global South. A report from the World Food Program (WFP) two months ago (when the war was two weeks old) projected that 45 million more people could be thrust into acute hunger if the war persisted. And a panel of global officials had already warned the world at the International Monetary Fund meetings in Washington in mid-April that even an immediate cessation of the war would require at least two months before global shipping approached a semblance of normalcy.
Weakness in the real economy of many developing countries has been compounded by financial pressures in the form of larger trade deficits driven by the jump in oil prices, higher inflation, depreciating currencies, drawdowns in central bank reserves, and the threat of central bank rate hikes to keep inflation in check even if the economy is weakening.
In the face of such pressures, many countries were forced to sell foreign exchange or gold reserves to defend their currencies from further depreciation. According to Bloomberg, losses in the Philippines amounted to 8.1% of all reserves, in India to 5.1%, and in Indonesia to 3.8%. India has also imposed stiff tariffs and other restrictions on gold imports, and Prime Minister Narendra Modi has urged Indians to avoid “unnecessary foreign travel,” in additional efforts to limit further pressure on the Rupee from non-energy imports or tourism. And Malawi is reportedly selling not just gold reserves but also semi-processed gold bars bought from local miners.
Europe is less dependent on Persian Gulf oil, with only 7% of it sourced there, as opposed to Asia, which draws roughly 60% of its oil from the region. Even so, it is not immune to the impact of higher prices, with the European Commission’s economic czar warning that the continent faces a stagflationary shock. As a relatively wealthy continent, the EU (and the UK) can afford to grant fiscal subsidies to affected businesses, thus reducing the pain there. However, such measures also force the need to reduce oil demand on the poorest countries that are unable to afford such backstops.
Latin America has proven more resilient to the shocks from the Iran war, helped by the fact that Argentina, Brazil, Colombia, and Ecuador are all net energy exporters, while Mexico runs a small energy deficit but buys most of its natural gas from the US. Chile is the sole large outlier on the front. Still, the energy trade might cushion most major Latin American currencies from sharp depreciation and financial stress, but as an agricultural exporter, the region is vulnerable to higher fertilizer prices and to inflation that could force central banks to raise interest rates.
In the United States, the administration has downplayed the impact of the war on the American people and emphasized how the dramatic increase in US oil production has led to a substantially lower reliance on imported energy. Treasury Secretary Scott Bessent has said that the administration's policies of “energy abundance” have helped the country withstand the shocks from the Iran War. And President Donald Trump said in April that “the United States imports almost no oil through the Hormuz Strait and won’t be taking any in the future…We don’t need it.”
In his recent remarks, Bessent observed that the war had also allowed the US to “focus on the opportunity at hand” as global demand for US energy surged. And, indeed the war has led to a dramatic increase in US exports of crude oil and downstream products. A recent piece in The New York Times noted that the US has exported an additional 145 million barrels of oil since the war began, leading to an increase in revenues of roughly $50 billion.
However, the flip side to this is that US consumers have reportedly spent an extra $40 billion on gasoline prices since the war began. For all that US energy exporters might benefit from higher global oil prices, US consumers do not. And research from the New York Fed suggests that lower-income households were hit much harder by higher energy prices, changing travel patterns in order to keep their gasoline budgets from getting out of hand.
American agriculture, meanwhile, has been hit with a double whammy as two major operating costs, fertilizer and diesel, have both seen sharp price increases. A report last month by the Farm Bureau suggested that 70% of all farmers say they are unable to afford all the fertilizer they need. This in turn could translate into lower crop yields and higher food prices—a worry that is even more pronounced among smallholders in the Global South, underlying the global effects of this war.
And while the US stock market has remained relatively buoyant through all this, boosted primarily by Artificial Intelligence and Semiconductor stocks, there are signs of deeper worries in global bond markets, including in the United States. Concerns over inflationary pressures driven by rising energy and food prices have combined with worries over the rising fiscal costs associated with increased defense budgets, fuel subsidies, and massive reconstruction needs to push global bond yields up significantly.
After annual consumer price inflation in the US jumped to 3.8% (far above the Federal Reserve’s 2.0% inflation target), the US Treasury’s 30-year bond hit its highest yield in 30 years last week. And while that might be good news for those who own newly issued bonds and will receive the interest paid on them, it is less favorable for those looking to buy or refinance a home as mortgage rates rise alongside US government bond yields.
Thus, the impact of this war within the US might not be as severe as that in large parts of the Global South, but even within America, there will be many more who lose than gain from the economic consequences of this war.
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Incompetent Trump Is Driving Us Toward Global Political-Economic Collapse
Operation Epic Fury is only the most severe example of President Donald Trump's poor decision-making, which is likely to produce one mega-disaster after another.
Apr 07, 2026
On March 13, buried in The New York Times’ coverage of the US-Israel-Iran conflict was a headline that would have been easy to miss amid the din of war coverage: “As El Niño Simmers, Scientists Warn of Weather Extremes Starting in Late Summer.” Many readers may not even have noticed it, but that article noted that scientists at the Climate Prediction Center, a part of the National Oceanic and Atmospheric Administration, had raised their estimate for an El Niño event this summer from 60% to about 80%.
Admittedly, in this strange world of ours, that hardly seemed like an earth-shattering revelation. But if you had read the piece more closely, your alarm bells should instantly have gone off. Forecasters now predict that the coming El Niño—a warming of the Pacific Ocean that deeply affects global weather patterns—is likely to be as severe as the one in 2023-2024, which triggered severe flooding and prolonged heatwaves around the world. As the article noted, however, average world temperatures are now actually higher than they were at the height of that previous El Niño, thanks to global warming, and so it’s likely that we will face even more intense heatwaves and flooding this time around.
Consider that news alarming enough. Unfortunately, the bad news didn’t end there. The Times article went on to report that, since early last year, the Trump administration has laid off thousands of Federal Emergency Management Agency (FEMA) workers, greatly diminishing the agency’s ability to respond to such impending weather disasters. And then there’s the dismal fact that Trump has overseen the dismantling of the US Agency for International Development, which once sent humanitarian aid to disaster-struck countries.
And, sadly enough, it only gets worse from there. After all, we know that the Trump administration is doing everything it can to boost the production of fossil fuels—the consumption of which is the main driver of global warming—even as it also works to impede global action to slow the warming process. On January 7, for example, the president announced that the United States would withdraw from the United Nations Framework Convention on Climate Change, the bedrock treaty upon which most international efforts to rein in that onrushing nightmare are based.
In other words, the rest of us will not only be deprived of emergency assistance during future climate disasters, but also lack timely information about oncoming hazardous weather patterns.
Likewise, on February 12, the administration repealed the scientific determination (called the “endangerment finding”) that gives the government the legal authority to combat climate change. And that’s not all: On March 15, the Times also reported that the administration was preparing to dismantle the National Center for Atmospheric Research, the nation’s premier institution for studying global weather patterns—including the severe climate disturbances we can expect from the coming El Niño and higher world temperatures. In other words, the rest of us will not only be deprived of emergency assistance during future climate disasters, but also lack timely information about oncoming hazardous weather patterns.
As I consumed all of that—in the midst, of course, of President Trump’s ill-conceived war on Iran—it struck me that we need to brace ourselves for ever more calamitous outcomes from Donald Trump’s extreme leadership incompetence. In fact, his incompetence is likely to produce one mega-disaster after another, culminating perhaps in global political-economic collapse.
Trump’s Profound Incompetence
Donald Trump’s leadership incompetence has already been demonstrated in one bad move after another. His capricious imposition of ever-fluctuating tariffs on US imports, for example, has caused prolonged misery for farmers and many small and medium businesses that depend on predictable trade patterns. Likewise, his heavy-handed deployment of armed Immigration and Customs Enforcement and other federal agents to Minneapolis achieved little in the way of apprehending dangerous immigrants but caused widespread disorder and violence, while killing two nonviolent protesters. But the most severe example of his governing incompetence to date has been his handling of Operation Epic Fury, the war with Iran.
While devising an elaborate plan to destroy Iran’s conventional military capabilities and shatter the regime, the Trump team appears to have made no preparations to eliminate the Iranians’ extensive drone capabilities or their ability to disrupt oil production and transit in the Persian Gulf area, with far-reaching global consequences. As of this reporting, the critical Strait of Hormuz through which one-fifth of the world’s oil supply passes every day (along with a substantial share of its liquefied natural gas [LNG] and chemical fertilizers) remains largely closed to commercial traffic. This has produced energy shortages in many countries that are heavily reliant on imported oil or LNG and, because oil is a globally-traded commodity, it has boosted gasoline prices in the United States, despite the fact that this country doesn’t import much Middle Eastern oil.
None of this should have been unexpected. The Iranians have, on numerous occasions, threatened to block the Strait of Hormuz in response to a US attack on their country, while their efforts to build up a vast stockpile of drones and missiles (and to hide them in remote underground sites) were well publicized.
Any intelligent war planner—of which there are many in the US military establishment—would have known of these realities and planned for them. Indeed, US planning to secure the Strait goes back to 1980, when President Jimmy Carter’s White House issued what became known as the “Carter Doctrine”—an assertion that any move by a hostile force to impede the oil flow in the Persian Gulf “will be repelled by any means necessary, including military force.” To enforce that edict, the Pentagon established the US Central Command (Centcom) and established a network of military bases throughout the Gulf region. Since its inception, Centcom has repeatedly stressed its ability to keep the Strait open in the face of any Iranian drive to block it.
Trump obviously ignored all such intelligence—collected over many years by top American officials—and started his war without the slightest apparent plan for keeping the Strait safe for energy shipping. Not only were US naval forces unprepared to escort oil tankers through it, but Trump failed to enlist US allies in such efforts—a glaring fault that only became obvious after the war began when he suddenly called upon them to do so (and chided them when they proved reluctant).
And consider all of this sheer, unadulterated incompetence, on a massive scale.
The Blows to Come
We have yet to witness all the consequences of Trump’s incompetence in undertaking the war against Iran. The shutdown of fertilizer exports from the Gulf is already causing the price of that critical commodity to rise around the world. In doing so, it threatens agricultural production as farmers balk at the higher costs—a trend likely to result in higher food costs everywhere, including the United States. That will, of course, result in increased hunger for those least able to afford the higher prices of food and rising inflation. The rise in food and energy prices could also diminish consumer spending and investor confidence, possibly leading to a global economic slowdown (or worse).
And don’t imagine that those are the only major shocks to the global system we can expect in the months ahead—shocks the Trump team is unlikely to address with competent leadership. At the January convocation of business and political elites in Davos, Switzerland, the World Economic Forum released its “Global Risks Report 2026,” identifying what experts believe are the greatest future threats to global stability and prosperity. According to those experts, the top risks include extreme weather events, state-based armed conflict, and a global economic downturn—real-time threats that Trump has already encountered and failed to address successfully. As those perils gain momentum in the months ahead, Trump’s incompetence will result in ever greater hardship and suffering.
The Adverse Effects of AI
That Davos Risk Report also identified another category of threats for which the Trump administration is woefully unprepared: “adverse outcomes of AI technologies.”
Beginning with AI’s impending impact on employment, the report cites one study suggesting that “AI could eliminate up to 50% of entry-level, white-collar jobs within the next five years in the United States, potentially driving unemployment to 10-20%”—an enormous threat to social and political cohesion. At the same time, a massive buildup of computing data centers is putting extreme stress on local energy and water supplies across the US, introducing an added layer of popular unease and conflict.
Nowhere does Trump’s plan acknowledge the potential for catastrophic job losses from widespread AI utilization or the risk of AI going rogue and threatening the survival of humanity.
Hovering in the background of all this is the threat of “rogue AI”—the possibility that computer scientists at OpenAI, Anthropic, or one of the other leading AI firms will create a “superintelligent” version of AI capable of outperforming humans in most cognitive tasks and selecting its own objectives, independent of human wishes or instructions. Think of “Skynet,” the superintelligent AI in the Terminator movie series that chooses to eliminate humans by inciting a global nuclear war. While the Davos Risk Report doesn’t address the risk of advanced AI development directly, there is growing talk in the scientific community of just such an outcome, as vividly suggested, for example, by the 2025 book If Anyone Builds It, Everyone Dies: Why Superhuman AI Would Kill Us All by Eliezer Yudkowsky and Nate Soares of the Machine Intelligence Research Institute.
And I’m sure you won’t be surprised to learn that President Trump and his entourage are wholly unprepared to address the very idea of such a possibility. Rather than emphasize safety in the development of advanced AI models, Trump has called for their untrammeled evolution. In his major policy statement on AI, “Winning the Race: America’s AI Action Plan,” he made his top objective overridingly clear: “It is a national security imperative for the United States to achieve and maintain unquestioned and unchallenged global technological dominance.”
That means, as his plan explains, eliminating all barriers to the development of advanced AI models, including any legislative restrictions on their release and any local environmental impediments to the construction of mammoth AI-driven data centers nationwide. Nowhere does Trump’s plan acknowledge the potential for catastrophic job losses from widespread AI utilization or the risk of AI going rogue and threatening the survival of humanity. Rather than offering Americans the slightest protection from such potential calamities, he is ensuring that they will become more likely and that the rest of us will suffer the consequences.
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How the Iran War Could Lead to a Crash Worse Than 2008
It’s too late to prevent the inflation of an AI bubble or to advise against a US attack on Tehran. At this point, the most we can do is to hope for a quick end to the war and for some improvisational brilliance among the world’s leaders of government and finance.
Mar 21, 2026
Several commentators have remarked that the United States’ war on Iran carries echoes of 2008. I’ll argue here that a potential financial crash this year could actually be much worse.
The Global Financial Crisis (GFC) of 2008 was the biggest economic crunch since the Great Depression. Unemployment surged, topping 10% in the US. Global stocks lost trillions of dollars in value. Major brokerage houses collapsed. The US auto industry only survived thanks to enormous government bailouts. How could another crash top that?
Consider the causes. The 2008 Great Recession resulted from a confluence of three factors:
- Failed US wars in the Middle East, in that instance against Iraq and Afghanistan. Many economists argue the Iraq and Afghanistan Wars contributed to the GFC by fueling massive American budget deficits and worsening trade imbalances, and by creating a “capital flow bonanza” that triggered the US credit boom. While not the sole cause, the war compounded the vulnerability of the US economy.
- Soaring oil prices, following the plateauing of world conventional oil production in 2005. Oil demand continued to rise but the global supply of oil did not follow suit. On July 11, 2008, crude prices hit $147 per barrel, their all-time high. Since the economy runs on energy and oil is the world’s most important energy source, oil prices have a way of impacting all industries. Financial markets crashed three months after the oil-price peak.
- A bursting financial bubble inflated by subprime mortgages in the US and financial derivatives traded worldwide. The mortgage bubble involved $1.3 trillion to $1.5 trillion in high-risk loans issued during the 2000-2006 housing boom. It was a house of cards waiting to tumble.
The resulting unwinding of debt and derivatives came within a hair’s breadth of turning into a massive bank run and general economic collapse. Governments (led by the US) bailed out industries and banks, lowered interest rates to zero, purchased large tranches of financial securities, and instituted enormous fiscal stimulus programs and tax cuts. Even with these rapid and maximum-scale efforts totaling hundreds of billions of dollars, the GFC led to widespread housing foreclosures, a near-40% downturn in the S&P 500, and a substantial increase in the poverty rate.
Now consider the following:
- Today’s AI financial bubble is four times bigger than the subprime mortgage bubble of 2008 and 17 times bigger than the dot-com bubble of 2000.
- The Iran war, though so far not involving US ground troops, could possibly end up being more problematic than the Iraq invasion of 2003, if only from the standpoint of flows of energy and international trade. The war is likely to result in real oil shortages and prices potentially even higher than those seen in 2008. Additionally, more of the Middle East is now involved in hostilities, and oil and gas production and shipment infrastructure is being damaged or destroyed, thereby undermining the long-term economic prospects of the region, as well as destabilizing its politics. No one knows how this will end.
- For the US economy, warning signs were already flashing before the war: Stubbornly high inflation, a bad jobs picture, and worsening consumer sentiment were indicators of a looming recession.
- The final factor can be stated as a question: Would today’s US Treasury head be as successful at averting financial doom as was Henry Paulson in 2008? Then, the US was able to enlist government and business leaders from the world’s key countries in cooperating to fashion a collective survival strategy. Would current US Treasury Secretary Scott Bessent have similar success, given the recent global collapse of trust in US leadership?
In view of the possibly catastrophic consequences of the attack on Iran, many people wonder what motives could have justified it. Logan McMillen argues in Foreign Policy in Focus that the so-called “Donroe Doctrine” intends to freeze China out of the Western Hemisphere and to deprive it of cheap energy:
The strategy is entirely zero-sum. By turning the Middle East and the Caribbean into militarized chokepoints, the United States is suffocating China’s independent oil supply lines, starving its industrial capacity while guaranteeing temporary windfall profits for Western supermajors. Concurrently, from the lithium flats of Bolivia to the ports of Peru, Washington is deploying right-wing proxies and military coercion to systematically dispossess Chinese capital in Latin America, re-colonizing the Andes to secure the supply chains of the 21st century.
Other commentators see the war as being spearheaded by members of the Christian Zionist movement, which desires a fulfillment of biblical prophecies of the battle of Armageddon and the return of Jesus.
Even if McMillen’s analysis is sound and there is an arguably rational motive behind the war, that doesn’t mean the campaign will go according to plan or that it will achieve its aims. Many analysts see it already careening off the rails.
It’s too late to prevent the inflation of an AI bubble or to advise against a US attack on Tehran. At this point, the most we can do is to hope for a quick end to the war and for some improvisational brilliance among the world’s leaders of government and finance.
Meanwhile, it would be smart to make whatever preparations you can. For folks in the Northern Hemisphere, it’s time to start planning this spring’s food garden. You might want to plant a few more rows of beans than you do most years, so you have enough to share with neighbors.
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