By : Shatha kalel
The economic repercussions of the current Gulf War can no longer be measured solely by the number of facilities destroyed, the scale of military losses, or even the rise in oil prices. They must also be assessed in terms of the deeper imbalances the war could create in the global economy if it becomes prolonged and the uncertainty surrounding it continues to grow.
Perhaps the most concerning risk today is the return of the specter of stagflation—a scenario that combines two economic problems that are extremely difficult to address simultaneously: rising prices on the one hand and weakening economic growth on the other.
This equation begins with the Strait of Hormuz, which is no longer merely a strategic waterway contested by regional and international powers. It has become an exceptionally sensitive pressure point in the global economy because any prolonged disruption to the movement of energy and trade through the strait can quickly affect oil prices as well as shipping and insurance costs.
The strait does not need to be completely closed for an economic crisis to begin. Simply increasing the risks surrounding the passage of oil tankers and commercial vessels may be enough to push insurance companies to raise premiums, shipping companies to impose additional risk-related costs, and markets to add a geopolitical risk premium to energy prices.
This is how the economic effects of war begin their journey from the Gulf to the pockets of consumers around the world.
Oil is not an isolated commodity. It affects transportation, manufacturing, agriculture, aviation, trade, and global supply chains. Therefore, an increase in oil prices does not remain confined to gas stations. It gradually feeds into the costs of food, transportation, goods, and services.
When production costs rise, companies may be able to absorb some of those increases temporarily. Eventually, however, they face two choices: accept lower profits or pass part of the additional costs on to consumers. At this point, inflation begins spreading from energy markets into the broader economy.
The other side of the problem may be even more dangerous. Consumers who must spend more on fuel, food, and transportation will have less disposable income available for other goods and services. Their purchasing power declines, weakening overall demand.
At the same time, businesses become more cautious about expansion, hiring, and investment, particularly when they cannot predict whether energy prices will fall within a few months or rise again following another round of escalation.
The economy can therefore enter a troubling situation: prices continue to rise while economic growth loses momentum. This is precisely the environment in which stagflation can develop.
The greater danger is that a prolonged war can transform an initial shock into a state of chronic uncertainty. Businesses can manage a short-term crisis, but planning becomes far more difficult when energy prices, trade routes, transportation costs, and future supplies all depend on unpredictable military and political developments.
Investment may then be postponed, hiring may weaken, and supply chains may be redesigned not primarily around efficiency and lower costs, but around security and risk avoidance. Such a shift could leave the global economy more expensive and less efficient even after the war itself has ended.
The risks become even greater when the consequences of the war reach the doors of central banks, because dealing with stagflation is fundamentally different from dealing with inflation or recession separately.
Under normal circumstances, when inflation rises, central banks generally raise interest rates or keep them elevated in order to reduce demand and control price pressures. When an economy weakens or enters recession, they can lower interest rates to encourage borrowing, investment, and consumption.
But when inflation rises while economic growth slows at the same time, policymakers’ room for maneuver becomes dangerously limited.
If central banks cut interest rates to support economic activity, inflation could worsen. If they keep rates high to control inflation, borrowing costs, mortgage payments, and corporate financing costs remain elevated, while investment and consumption may decline further, weakening the economy.
In other words, the medicine used to fight inflation can deepen stagnation, while the medicine used to fight stagnation can intensify inflation.
This is why the economic risks associated with the Gulf War extend far beyond the region itself.
Energy-importing countries will face higher bills. Developing economies already burdened by debt may confront a double challenge: higher energy prices combined with higher financing costs. Meanwhile, governments may face growing social pressure to protect their populations from rising living costs precisely when their fiscal capacity to provide such support is becoming more constrained.
This is where the deeper economic dimension of the conflict itself emerges.
The United States is betting that sanctions, military pressure, and economic pressure will make the cost of continuing the confrontation greater than Iran’s ability to withstand it. Yet the sensitivity of the Strait of Hormuz and global energy markets gives Tehran a different form of leverage: instability in the region can also increase the economic cost of the conflict for the wider global economy.
The confrontation therefore becomes, in part, not simply a contest of military power but a contest over who can endure economic pain for longer.
The problem is that the entire world may end up paying part of the price of this contest, even if most countries are not directly involved in the war.
For this reason, the most important economic question today is no longer simply: How high will the price of a barrel of oil rise?
The more important questions are: How long can an energy shock persist before it develops into broader inflation? And how long can central banks maintain high interest rates before growth, investment, and employment begin paying the price?
If high energy prices combine with rising shipping costs, inflation remains persistent, interest rates stay elevated, and consumption, investment, and economic growth weaken, the world may no longer be facing a temporary oil crisis. It could instead be confronting a genuine risk of stagflation.
In that case, the most dangerous consequences of the Gulf War may not be those visible on military maps, but those that later appear in household budgets, corporate decisions, labor markets, and economic growth figures.
Wars may end through political decisions, but the economic shocks they unleash do not necessarily end with them. The world could spend years dealing with the consequences of a crisis that began in the Gulf and eventually found its way into the very heart of the global economy.
Economic Unit – North America Office
Al-Rawabit Center for Research and Strategic Studies