Why the Iran War Could Tip the Economy Over the Cliff
Andreas Cervenka
Reporter and economic commentator
This is a commentary text. Analysis and positions are those of the writer.
Updated 17.38 | Published 16.34
The world economy has shaken off crisis after crisis in the past year.
Will the same thing happen with the war in the Middle East?
Two things speak against it.
One trend has been clear in recent years: the optimists have swept the runway with the pessimists.
Problem after problem has been thrown at the world economy: inflation crisis, interest rate rush, customs chaos, a suspected AI bubble and the most serious geopolitical tensions since World War II. Result: a shrug.
The International Monetary Fund IMF's latest forecast is that the world economy will grow by 3.3 percent this year, about the same as last year.
At the same time, the stock markets in recent months, both in the US and here at home in Sweden, have hit new records.
In recent months, much of the concern has revolved around AI - actually a tug-of-war between two different fears.
On the one hand, that AI will not bring the revolution that many believe, which means that the enormous investments being made right now will not pay off - and that the bubble will burst.
On the other hand, that AI will actually change the world, knock out lots of existing companies and cause mass unemployment. This has caused share prices in many companies to fall in recent weeks.
The war in the Middle East is a reminder that something else and much more tangible than ever is even more important to the economy: oil and gas.
The first thing to be discussed when it comes to wars and conflicts is not money.
But the economy is also part of modern warfare.
A fifth of all the oil and gas consumed in the world is transported through the Strait of Hormuz, which has now been effectively closed.
This has caused the price of oil to rise by 10 percent on Monday, while gas became a full 50 percent more expensive.
The latter could be particularly painful for Europe.
The last time gas prices rose rapidly was after Russia's invasion of Ukraine.
The price is now significantly lower than it was then, but continued increases will be difficult for European households and companies.
The price of gas affects the price of electricity, which in turn affects inflation.
An economic horror scenario is that it starts to rise again in Europe.
In the short term, the great uncertainty means that major decisions and deals are put on hold. Many people are hesitant to buy cars or refrigerators when the news is dominated by news of war and companies are putting the brakes on.
It is also a setback for the Swedish economy, which is supposed to make a comeback this year and has already been hit by a Greenland crisis and new customs chaos so far in 2026.
The stock markets have so far reacted relatively calmly to the drama.
The Stockholm Stock Exchange opened down around two percent on Monday, as did several other major stock exchanges in Europe. The stock markets in the US also look to be showing red numbers when trading opens.
At the same time, the stock market has become somewhat dulled in recent years.
Every crisis with falling prices has been short-lived and has been followed by new rises.
Will the pattern be repeated this time too?
Two things speak against it. First, this crisis is at a completely different level than the previous ones, with greater potential consequences.
Above all, it is significantly more unpredictable.
When missiles rain down on a long list of countries in the Gulf and at the same time close several of the world's largest airports, it triggers chaos.
Great forces are in motion. What will happen next? On Monday, Iran struck an oil refinery in Saudi Arabia, one of the world's largest.
If several facilities are damaged, it could lead to longer-term problems and even higher oil prices that last longer.
What will Saudi Arabia's response be, and how will Iran in turn respond to it?
It is easy to imagine a scenario where the conflict escalates beyond control.
The second reason why this crisis should be taken very seriously is that it comes at a time that is already strained. In addition to AI and stock markets at record levels, Europe is facing a looming China shock with cheap products that are challenging the industry. In the US, there have been signs of an approaching crisis in the market for lending outside the banking system, so-called personal credit, which has led some analysts to draw draw comparisons with the run-up to the 2008 financial crisis.
In addition, there are other potential mega-crises simmering in the background that deal with the indebtedness of major countries and the future of the US dollar, risks that have caused gold to rise sharply in the past year, among other things.
A prolonged and worsening conflict in the Middle East could prove to be one crisis too many and be what tips the economy over the edge.
Of course, this does not have to happen at all, and it all depends on how the war develops in the near future.
And the fact that the world economy seems to be more resilient than many thought is a positive thing.
But behind the increasingly relaxed attitude towards threats that had created panic just a decade ago, there is a sense of a dangerous feeling that always precedes deep economic crises: nonchalance.
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