To The Moon

Under the most optimistic scenario for the global economy, the latest Middle East conflict would conclude within weeks. The region would continue producing oil and natural gas, shipping through the Strait of Hormuz would resume, and concerns over inflation would gradually fade. However, experts caution against premature optimism. U.S. and Israeli strikes on Iran, along with retaliatory actions by Iran in the region, have created a dangerous situation that poses significant risks to the global economic outlook. The greatest concern is that Iran may escalate its retaliation, potentially attempting to disrupt oil and gas production capabilities in regional powers such as Qatar and Saudi Arabia. Any event that prolongs the conflict or threatens oil and gas supplies could drive up energy prices, thereby triggering inflation. "We are in a very fragile period," said Kenneth S. Rogoff, former chief economist at the International Monetary Fund and a professor at Harvard University. The core of current concerns lies in the fate of Middle Eastern energy supplies. The region provides 30% of the world's oil and 17% of its natural gas. Any disruption would almost certainly impact the world's largest importers—major economies in East Asia and Europe. Whenever new worries arise about Middle Eastern oil supplies, memories return to the 1970s. At that time, OPEC cut production to drive up oil prices, causing widespread shocks. Americans faced long queues for rationed gasoline and paid record prices to keep their large cars on the road. Then, as now, the focus was on the Strait of Hormuz—a narrow waterway adjacent to Iran that connects the Persian Gulf with the Indian Ocean. Approximately one-fifth of global oil supplies pass through this route, with much of it destined for Asia. However, historical comparisons also reveal differences. The expanded OPEC+ alliance has committed to increasing output to offset any conflict-related supply disruptions. Thanks in part to significant production increases in the United States, global oil supply generally remains above demand. For many countries, the oil shocks of the 1970s and subsequent Gulf conflicts prompted efforts to achieve greater energy self-sufficiency. Recognition that oil and gas supplies are always subject to geopolitical risks—not to mention climate change concerns—has also accelerated the transition to renewable energy. Yet the current crisis highlights a stubborn reality: the world remains heavily dependent on fossil fuels. If refineries are damaged, it would also affect the production of petrochemicals, including fertilizers, thereby increasing food production costs and threatening nutritional security in sub-Saharan Africa and South Asia. Oil prices surged more than 10% at one point on Monday, reflecting market anxiety over global energy supplies. However, they later retreated, suggesting that the market views the problem as primarily confined to Middle Eastern oil and gas export capacity. "Europe and East Asia are the most vulnerable regions because they depend on imported energy," said Adnan Mazarei, a senior fellow at the Peterson Institute for International Economics in Washington. The high stakes were evident on Monday when Qatar's state-owned oil company announced it would suspend liquefied natural gas production due to risks associated with shipping through the Strait of Hormuz, causing European gas prices to jump by 50%. India faces a particularly complex situation. Last month, the Indian government pledged to Donald Trump that it would reduce oil imports from Russia in exchange for U.S. tariff relief, shifting instead to increased imports from Persian Gulf countries such as Saudi Arabia and the United Arab Emirates. However, the conflict now threatens those supplies as well. India's economy also relies heavily on remittances—money sent home by overseas workers in sectors such as construction, retail, and hospitality. Approximately 9 million Indian laborers work in the Persian Gulf, accounting for 38% of India's total remittances. The United States appears relatively secure as the world's largest crude oil producer and top exporter of liquefied natural gas. However, if oil and gas prices continue to rise, while U.S. fossil fuel companies may benefit, American consumers would almost certainly face higher gasoline prices. Rising fuel costs would ripple through the economy, driving up overall prices. This is why many experts believe Trump will seek to end the conflict quickly—to prevent high energy prices from further increasing consumer costs. He won the election partly due to public dissatisfaction with food prices. A rise in gasoline prices ahead of the November congressional elections would carry political risks. In the longer term, however, the conflict's impact could push inflation higher. Rogoff noted that the U.S. will need to replenish its weapons stockpiles, adding to the national debt burden. "We will have to spend more on the military, which will have an impact on interest rates and inflation," Rogoff said. "It is unavoidable."