Since the Iran war began, the market narrative has been simple: the oil surge, inflationary impulse and broader market volatility will be temporary and die down when the conflict ends, allowing central banks to grease the economy and markets with easy money, as they have consistently done since 2008.
But there is a counter-view that says the scars of the Iran war will linger for a long time in the form of a structurally elevated global inflation floor. This can affect returns across all asset classes, including stocks, crypto and bonds.
The answer to that lies in the biggest takeaway from the Iran war: Energy markets are fragile, and major economies are exposed to oil price spikes and energy disruptions.
For decades, several countries, including major economies, have relied on global energy supply chains, price-driven markets and comparative advantages. That model worked, but it has now crumbled amid the latest disruption in the Strait of Hormuz, which has led to massive energy shortages around the world, including in major economies such as India, Japan and South Korea. If the conflict drags on, countries like China that have significant reserves could also suffer, including the supposedly energy-independent US
The result: Going forward, every nation is likely to make energy independence and security central to its national security strategy.
According to energy market expert Anas Alhajji, this trend will trigger rapid de-globalisation of energy markets, prioritize cost control and create sticky inflation.
“Once that mindset takes hold, global energy markets will never return to the old model of open, price-driven, largely commercial trade. Instead, capitalist economies—historically dependent on market efficiency, global supply chains, and comparative advantage—will increasingly reflect the Chinese approach: heavy state direction, strategic storage, vertical integration, subsidies to domestic champions, and prioritization of self-cleansing costs and cost minimization over self-cleansing prioritization/cost minimization,” he explains. on X.
He added that most nations lack China’s centralized supply chain, industrial base and decision-making, which can result in slower innovation, fragmented markets and higher costs.
“The result: higher costs, slower innovation in some areas, fragmented markets and reduced overall efficiency for Western-style economies, all in the name of ‘security’. Energy ceases to be another commodity; it becomes a geopolitical weapon and a domestic fortress,” he noted.
In other words, the impact of the Iran war goes beyond short-term oil price volatility.
There are already signs of widespread fallout, affecting everything from fertilizer and food production to industrial production and perhaps even chipmaking and the semiconductor industry, as the disruption in the Strait of Hormuz chokes supplies of helium and sulfur, which are vital to chipmaking.
On top of that, the UN has already warned of higher food prices worldwide.
Impact on assets
All of this means that central banks may no longer have the space they once had to quickly open the liquidity tap to support the economy and asset prices.
From 2008 to 2021, the global consumer price index (CPI), or inflation rate, averaged below 3% (rising briefly to 8% in 2022, only to fall back to 3% in 2024), according to data source St. Louis Fed. This allowed central banks, including the Fed, BOJ and others, to conduct ultra-easy monetary policies that set interest rates at or below zero and pump liquidity via aggressive bond purchases or quantitative easing, fueling epic gains across all markets. Bitcoin went from a single-digit dollar-denominated price in 2011 to $126,000 last October.
But with an expected structurally higher inflation floor, that paradigm changes. Central banks can no longer assume that they can always lower interest rates to drive growth. Liquidity could be more limited, limiting returns across asset classes.
The message is clear: Investors should prepare for a world where inflation is sticky, monetary policy is less accommodative and market volatility is the new normal.
