Markets may be underestimating the risks of a prolonged Iran war. If the conflict drags on, it could lead to severe economic consequences, including an economic slump and potential debt crisis.
Energy markets, particularly the Strait of Hormuz, are at significant risk. This narrow waterway is crucial for global oil and natural gas supplies. Disruption here could quickly affect prices worldwide, impacting industries that rely heavily on transport and energy.
Hidden supply chain risks include helium and sulphur, essential for semiconductor manufacturing, medical imaging, and other industrial activities. Agriculture could also face pressure due to disruptions in fertiliser production, leading to higher food prices.
Central banks may face challenges in controlling inflation, as sustained energy price increases could complicate monetary policy. A prolonged conflict could even lead to stagflation, a combination of high inflation and weak economic growth, affecting the Gulf region, Europe, East Asia, and developing economies.