US attacks Iran: How does this affect us and what could be the economic cost?
Some days ago, the U.S. ordered airstrikes on three Iranian nuclear facilities: Fordow, Natanz, and Isfahan.
The stated goal was to neutralize the enrichment program which, according to Washington and Israel, could enable the development of nuclear weapons.
It was a coordinated operation with Israel; Prime Minister Netanyahu called it a "historic moment" and a "pivot in history" for the Middle East.
I must admit, the Northrop B-2s give me wet dreams.
The military escalation prompted financial operators and Middle Eastern governments, especially in the UAE and Kuwait, to warn of possible retaliation, including the threat of closing the Strait of Hormuz — a vital route for oil transportation.
Ah, if you're wondering how B-2s are still flying 40 hours later, here's your answer.
Immediate Impact on Energy Markets
Markets reacted with a sharp spike in oil prices: Brent surged by 18% since the Israeli attacks in early June and neared $100/barrel.
In the short term, experts estimate that even a partial closure of the Strait of Hormuz — through which nearly 25% of global oil flows — could push crude up to $130/barrel. No joke.
The rise in prices complicates the task of central banks, which are already dealing with inflationary pressures. Energy price increases quickly ripple through to transportation, industrial goods, and basic products, making it harder to contain inflation and increasing financial market volatility.
Macro Channels and Possible Scenarios
The oil price surge due to geopolitical tensions can be short-lived: historically peaking around 12%.
The impact unfolds in two phases:
Risk channel: Investors drive up oil prices out of fear of supply disruptions.
Activity channel: Higher energy costs dampen consumption and investment, weakening demand and easing prices.
Studies from the ECB and the Dallas Fed suggest that, except for deep crises like in the '70s, the global GDP impact tends to be mild (< –0.2 pp).
Still, a prolonged or severe conflict could have more serious effects.
Main Potential Scenarios
Rapid De-escalation
Iran refrains from closing the strait or attacking more oil infrastructure.
Crude falls back to $60–75/barrel and global markets rebalance.
Intermittent Escalation
Iran retaliates with attacks on Saudi or regional oil facilities, or threatens shipping through Hormuz.
Oil surpasses $100/barrel, triggering strong inflationary pressures, market volatility, and stock drops.
Prolonged Regional War
Involvement of regional powers or sustained closure of the strait.
Global growth destabilized, recession in oil-dependent economies, and increased global financial volatility 📉.
Effects on the Real Economy
Inflation: Oil over $100 means higher global energy costs, triggering second-round effects on consumer and industrial prices.
Monetary Policy: Central banks (Fed, ECB) face a dilemma: raise rates to fight inflation (risking growth), or pause to protect growth (letting inflation persist).
Financial Markets: Global indexes could correct with volatility spikes (VIX), as seen in past crises.
Investors would seek safe havens: dollar, sovereign bonds, gold, and crypto would rise.Trade & Supply Chains: Fears of maritime transport disruptions could raise cargo insurance and risk premiums, increasing the cost of exports/imports — especially for time-sensitive goods (food, semiconductors). Watch this ripple effect.
Deficits & Debt: Oil-importing countries would see their energy bills rise. Governments must choose between cutting spending or increasing debt — potentially fueling more inflation.
Double Impact: Sanctions vs. Military Attacks
Iran was already in a deep economic crisis:
Inflation at 35–50%, rial collapse, unemployment, poverty, frequent blackouts, and protests. We’re not far from this, hard as it may be to believe.
Sanctions block oil exports and access to international finance, pushing the country toward a "resistance economy": bartering, smuggling, crypto mining, and industrial relocation.
The destruction of nuclear and energy infrastructure worsens the situation. While the U.S. pressures Iran to halt enrichment, Iran is surrounded by sanctions and increasing internal debt issuance. This creates a vicious cycle: repression at home to prop up the economy makes regional escalation more likely — which, in turn, brings more sanctions.
Repercussions in the U.S.
Consumers: Gas and energy prices rise, cutting household and business purchasing power.
Imported Inflation: More pressure on the Fed to maintain or hike rates, affecting consumption and investment.
Defense: A sudden spike in military spending, increasing public debt.
How I See the Short and Medium Term
Short term (1–2 months)
High volatility. If Iran decides not to block the Strait of Hormuz (though it has already stated it will), and the U.S. doesn’t launch a second wave of attacks, oil could stabilize around $70–85/barrel — still above previous levels (~$65).
Any explicit Iranian threat to oil infrastructure or navigation could catapult prices above $100–110 and trigger extreme market nervousness.
Medium term (3–12 months)
If tensions drag on or become a wider proxy war (e.g., with attacks between regional allies), we could enter a stagflation scenario: low growth + high inflation.
Impact on Central Banks: The Fed and ECB would have less room to cut rates even if the economy slows. This seriously complicates monetary policy, especially in Europe, which is more dependent on imported oil.
Impact on Consumption: Households feel the pinch from fuel, heating, and food. Consumer confidence drops, slowing the economy further.
Impact on Public Debt: Governments may be tempted to boost military spending or subsidize energy, increasing deficits and sovereign debt pressure.
🔎 Example: In the Eurozone, if Brent stabilizes at $110/barrel for months, the ECB will face pressure to keep rates high despite a clear slowdown in Germany, France, and Italy.
Wrap-Up
The U.S. attack on Iran appears to be a geopolitical shock rapidly spilling over into energy and financial markets.
Crude prices could rise sharply, affecting inflation, growth, and global monetary policy.
Even though studies (ECB, Dallas Fed) suggest the macro impact may be limited if the shock is short-lived, the risk of escalation opens the door to a perfect storm:
High inflation
Stalled growth
Jittery markets
The outcome depends on Iran's behavior (retreat or counterattack), OPEC's response, and whether sanctions intensify.