A potential war between the US, Israel, and Iran threatens a multi-wave economic crisis that will ripple through global markets for years, according to economist Umair Waqas.
The First Wave: Energy and Raw Materials
The economic fallout of a conflict with Iran has only just begun to surface. Beyond immediate spikes in energy prices, the impact will permeate various sectors of the global economy for years, affecting even nations far removed from the conflict zone.
Rising energy costs represent the primary shock, as energy is a fundamental input for nearly all traded goods. For example, natural gas accounts for 70-90 percent of ammonia production costs. Consequently, fertilizer and agricultural prices will climb, eventually driving up the cost of industrial goods within 12 to 18 months.
Disruption of Global Trade Architecture
War-related consequences often lead to permanent shifts in trade architecture. A clear example is the crisis in the Red Sea, where Houthi rebel attacks on shipping forced vessels to bypass the Bab al-Mandab Strait for the Cape of Good Hope, adding weeks to transit times and significantly increasing costs.
Even after the immediate risk of attacks subsides, shipping routes have not reverted to pre-2023 levels. Shipowners and insurers have adapted to these higher costs, passing them on to consumers, and the logistical challenges of reversing these changes have proven too great for the industry to resolve.
Impact on the Global South
The Global South will bear the brunt of the crisis. While developed economies attempt to mitigate shocks through fiscal measures and strategic reserves, impoverished nations are forced into import restrictions, currency devaluation, rationing, and hunger.
These economic crises threaten to destroy social contracts, potentially leading to political instability. Drawing a parallel to the Arab Spring, which was largely fueled by rising wheat prices, economists warn that current economic strain is likely to spark widespread political unrest.
