The Iran war is creating a permanent inflation floor, potentially ending the era of cheap money and exposing global energy market fragility.
Initially, markets assumed oil spikes and volatility were temporary. A counter view suggests scars will persist structurally. The primary takeaway is that energy markets are fragile, leaving major economies exposed to price spikes and supply disruptions.
Decades of reliance on global supply chains have crumbled amid disruptions in the Strait of Hormuz. Energy shortages now affect India, Japan, South Korea, and potentially China. Going forward, nations will prioritize energy independence and security over cost efficiency.
Energy Market Expert Anas Alhajji warns this triggers rapid de-globalization. Capitalist economies will increasingly mirror the Chinese approach: heavy state direction, strategic stockpiling, and vertical integration. This prioritizes control over cost minimization.
Consequently, Western-style economies face higher costs and fragmented markets. Energy becomes a geopolitical weapon rather than a commodity. Fallout extends to fertilizers, food production, and semiconductor manufacturing due to helium and sulfur shortages.
Central banks may no longer have room to turn on the liquidity tap. From 2008 to 2021, average inflation remained under 3%, allowing ultra-easy monetary policies and aggressive bond buying. That paradigm shifts with a structurally higher inflation floor.
Liquidity will likely be constrained, capping returns across stocks, bonds, and crypto. Investors must brace for sticky inflation, less accommodative monetary policy, and volatility as the new normal.