Since the war with Iran began, the market narrative has been simple: the rise in oil, inflationary momentum, and increased market volatility will be temporary and will die down once the conflict ceases, allowing central banks to grease the economy and markets with easy money, as they have consistently done after 2008.
But there is a contrary view that says the scars of the Iran war will persist for a long time in the form of a structurally high global inflation floor. This could affect the returns of all asset classes, including stocks, cryptocurrencies and bonds.
The answer to this lies in the main conclusion of the war with Iran: energy markets are fragile and major economies are exposed to increases in oil prices and disruptions in energy supplies.
For decades, several countries, including major economies, relied on global energy supply chains, price-driven markets and comparative advantages. That model worked, but has now collapsed amid the latest disruption in the Strait of Hormuz, which has caused massive energy shortages around the world, including in major economies such as India, Japan and South Korea. If the conflict drags on, eventually countries like China, which have considerable reserves, could also suffer, including the supposedly energy-independent United States.
The result: In the future, all nations are likely to make energy independence and security central to their national security strategy.
According to energy markets expert Anas Alhajji, this trend will trigger a rapid deglobalization of energy markets, prioritizing cost control and generating persistent inflation.
“Once that mentality 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 advantages) will increasingly reflect the Chinese approach: strong state direction, strategic warehousing, vertical integration, subsidies for national champions, and prioritizing self-sufficiency/control over pure cost minimization,” he said in an explanation in x.
He added that most countries lack China’s supply chain, industrial base and centralized decision-making, which could 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 just another commodity; it becomes a geopolitical weapon and an internal 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 consequences, affecting everything from fertilizer and food production to industrial production and perhaps even chip manufacturing and the semiconductor industry, as the disruption in the Strait of Hormuz chokes off supplies of helium and sulfur, which are crucial for chip manufacturing.
Furthermore, the UN has already warned about rising food prices around the world.
Impact on assets
All of this means that central banks may no longer have the room they once had to quickly turn on the liquidity spigot to support the economy and asset prices.
From 2008 to 2021, the global consumer price index (CPI) or inflation rate averaged less than 3% (rising briefly to 8% in 2022, before falling back to 3% in 2024), according to the St. Louis Fed data source. This allowed central banks, including the Federal Reserve, the Bank of Japan, and others, to pursue ultra-loose monetary policies that set interest rates at or below zero and injected liquidity through aggressive bond purchases or quantitative easing, driving epic gains across markets. Bitcoin, for example, went from a single-digit dollar-denominated price in 2011 to $126,000 in October of last year.
But with an expected structurally higher inflation floor, that paradigm changes. Central banks can no longer assume they can always cut rates to boost growth. Liquidity could become more restricted, 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.
