The Worst-Case Economic Outcome of Trump’s Iran War
The risk of falling into a doom loop like this was apparent the moment the Strait of Hormuz was effectively shut down, and oil prices shot up. But many hoped the strait might quickly reopen and the shock would be short-lived. That hasn’t happened. And there’s now no way we can return to the antebellum status quo quickly—or perhaps ever. That’s because, in a significant escalation, both sides in the conflict have now started targeting energy infrastructure. On Wednesday, Israel bombed Iran’s South Pars gas field, the largest natural gas field in the world and a major lifeline for Iran.3 Subsequently, Iran attacked the world’s largest LNG facility (located in Qatar, whose LNG exports will as a result be down by almost a fifth for up to five years) and it has targeted a host of other natural resources, refineries, and other processing facilities in the United Arab Emirates, Saudi Arabia, Kuwait, and Israel. (The AP put together this useful map of major energy infrastructure sites that have been hit so far.) Destroying fuel-producing infrastructure is fundamentally different from temporarily blocking a fuel transit passageway. When infrastructure is gone, it’s gone. It could take years to rebuild.
Not sure this article describes the "Worst Case Scenario", more like just an easily predictable bad one. Escalation to Global Thermonuclear War is certainly a possibility, and that would definitely be worse. A 5 year recession would be bad for sure, but a decade long Global Depression would be worse. Higher food prices would be bad, but a Global Famine with half the worlld population dying of starvation would be just a little worse, don't ya think?
Are any of these LIKELY outcomes right now? No, but the chances have definittly risen from minute to significant and are worth considering as worst case scenarios.
At this point, I can't see ANY way "normal" pre-war shipping will return inside the next year, and quite possibly never. That will significantly reduce the flow of oil from the gulf and keep the prices high until the demand crashes, which it must once the consumers are fully tapped out. Oil production facilities that manage to survive undamaged will have to be shut in.
Somewhere along the timeline there will be a credit crisis as bankruptcies pile up, followed by bank failures. This kind of thing is bad enough when it is just resultant from malinvestment in one sector like real estate, or a confined area like southern Europe, but when it's global and across all sectors it's a pretty hopeless situation. Maybe the Smartest Guys in the Room can find a Magic Bazooka, but it will surprise me if they do.
At most, I think we're 6 months away from a financial crisis that will make 2008 pale in comparison. I could be wrong of course, wouldn't be the first time. Not looking good though.
RE