The crises caused by the Iran war will hit the world in four waves

The impact of the conflict will not stop at energy price hikes. It will spread to various sectors and last years. If tomorrow Iran, the United States and Israel were to announce a peace deal and the Strait of Hormuz were to reopen, the war would not be over. Wars do not end when the missiles stop flying. They end when the structural damage they inflict on the global trading system finishes working its way through prices, contracts, balance sheets and political legitimacy. By that measure, the impact of the 1990 Gulf War, for example, lasted decades. Iraqi crude oil production did not recover to pre-war levels until a decade after the conflict while the Iraqi state continued to pay the United Nations-mandated $52.4bn in compensation to Kuwait until 2022. Similarly, the Ukraine war shock may have been at its most palpable in 2022, but it is still affecting economies across the world and will do so even after it ends. The Iran war has only just begun to deliver its costs – costs that will be paid, as always, by nations that had no role in starting the conflict. Its global impact will come in four waves. The first wave is the one everyone sees. Crude moves, liquefied natural gas (LNG) follows, freight rates spike and the financial press writes about energy inflation as though it were the main disruption. It is not. It is the entry point. Energy is an input into nearly every tradeable good, and the pass-through follows a predictable sequence. Natural gas, for example, accounts for 70 to 80 percent of the variable cost of ammonia production for producers globally. As a result, within months of a sustained gas shock, fertiliser prices follow. The present case compounds the pressure in two ways simultaneously: The disruption removes not only LNG from the global market but also fertiliser produced in the Gulf, a region that accounts for about 30 percent of global ammonia exports and 35 percent of global urea exports, the bulk of which are routed through the Strait of Hormuz. Within roughly two planting seasons, food prices follow the spike in fertiliser costs. Within 12 to 18 months, prices of manufactured goods follow those of energy. The shock that begins in a tanker lane in the Gulf eventually arrives in the price of bread in Cairo, the cost of rice in Dhaka and the fertiliser ration of a smallholder in western Kenya. The second wave is the one almost no one is writing about. It is architectural damage to the trading system itself – the changes that ratchet upwards during a crisis and then refuse to ratchet back down afterwards. Consider what happened to the Red Sea. After Houthi attacks on shipping began in late 2023, container traffic through Bab el-Mandeb collapsed and was rerouted around the Cape of Good Hope. The transit time penalty for tankers from Asia to Europe was roughly 16 to 32 days; the cost penalty was $1m in additional fuel and capital costs per voyage. By any reasonable forecast, traffic should have recovered when the security situation stabilised. It did not. Carriers, insurers and traders had already absorbed the fixed costs of reorganising around the longer route. Reverting required a coordinated act that the market would not perform. Two years on, Red Sea traffic remains way below pre-2023 levels. The third wave is the complex economic impact on the Global South. Advanced economies absorb energy and freight shocks through fiscal cushions, reserve currencies and diversified suppliers. Developing economies absorb them through import compression, currency depreciation, fertiliser rationing and hunger. Food accounts for 44 percent of household expenditures on average in low-income countries compared with 16 percent in advanced economies. This is not a market outcome. It is a redistribution, a transfer of welfare from the world’s poorest households to commodity exporters and the financial intermediaries who clear, insure and finance the trade that survives. No ceasefire addresses this redistribution. No framework agreement reverses it. The diplomatic instrument that ends a war is not designed to undo the economic transfers the war has imposed. The transfer simply settles into the system as the new baseline, and the next shock builds on top of it. The fourth wave is political. Supply chain shocks do not stop at balance sheets. They damage social contracts. The Arab Spring was, in significant part, a wheat price shock translated into a political rupture. Sri Lanka’s government collapse took place after the pandemic compounded pre-existing foreign exchange and debt crises. Pakistan’s 2022-2023 unrest was the product of a balance-of-payments crisis worsened by the 2022 surge in global energy prices. The Iran war’s downstream inflation will land on countries across the Global South that are already operating with depleted legitimacy reserves, narrow fiscal space and citizens who have absorbed shock after shock since the pandemic. Some governments will not survive it. The instability that follows will t