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    Iran War Oil Shock Threatens to Unleash Wave of Global Inflation



    Iran War Oil Shock Threatens to Unleash Wave of Global Inflation

    President Donald Trump’s war with Iran threatens to deal a severe blow to a global economy still grappling with the impact of his historic tariff hike. For Europe, sustained higher energy prices would take the economy to the brink of recession. For the US, they would place the Federal Reserve in an impossible position — stuck between a war that pushes inflation higher and a president demanding that interest rates come down. For China, the end of discounted Iranian oil imports adds to strain from Trump’s tariffs and a real estate collapse. In the first days of the fighting, the intensity is high and the endgame uncertain. Bloomberg Economics has modeled scenarios for what lies ahead, and what they mean for oil prices, major economies, and the future of Iran. It is, of course, possible that Washington and Tehran find an off-ramp, oil settles back at its pre-escalation average of $65 a barrel, and the global economy dodges a blow. Jennifer Welch, Bloomberg Economics Chief Geoeconomics Analyst, joins Bloomberg Businessweek Daily to discuss. She speaks with Carol Massar and Tim Stenovec.
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    48 Comments

    2. @xTheLoyalDutchx on

      Save up your money, inflation is going to rise and interest rates going up. That will sink the stockmarket, so get ready beforehand. Oil and gas prices going up, and shipping costs going up will increase prices for goods in the stores as they will have to pay more money to get their goods. If this war continues for months then inflation WILL COME.

    5. @Lynn-r6r7e on

      Core inflation excludes energy and food prices, making it a poor indicator of how a conflict with Iran affects U.S. prices, as such wars immediately shock oil supplies, raising gasoline and transportation costs. Because energy is crucial for producing and shipping goods, its volatility directly impacts the consumer's cost of living, which core inflation misses by design.
      Barron's
      Barron's
      +4
      Excluded Volatility: Core inflation ignores the most direct, immediate impacts of a potential war, such as surging oil and, consequently, food prices.
      Impacted Sectors: A conflict in the region, particularly near the Strait of Hormuz, directly increases diesel and gasoline prices, boosting transportation costs for nearly all goods.
      Secondary Inflationary Pressures: Even though core inflation strips out food and energy, these costs eventually feed into the prices of other goods and services, such as airfare and manufacturing, which are included in core measures.
      Alternative Measure: Headline CPI, which includes food and energy, provides a more accurate picture of the immediate impact on household expenses, as gasoline prices react immediately to geopolitical tensions in the Middle East.
      PBS
      PBS
      +4
      While some analysts, like JPMorgan's Jamie Dimon, suggest the inflationary impact might be minor if the conflict is not prolonged, the immediate pressure on consumer budgets is primarily felt through energy and food prices, not in the "core" sector.

    6. @Lynn-r6r7e on

      Based on early 2026 reports, the "elephant in the room" is indeed the unprecedented volume of US Treasury debt maturing that must be refinanced, often referred to as the "maturity wall".
      Key Data on the 2026 Debt Situation:
      Magnitude: Approximately $9 trillion to $9.2 trillion in marketable US Treasury debt is set to mature in 2026, which represents roughly 25% to one-third of all outstanding federal debt.
      The Problem: Much of this debt was issued at very low interest rates (often near 0–1%) during 2020–2021. This debt now must be refinanced at significantly higher interest rates (around 4-5% or more), dramatically increasing the cost of debt servicing.
      Interest Costs: Consequently, the interest cost of U.S. Treasury bonds is expected to exceed $1 trillion for the first time.
      Timing: Roughly 55%-60% of this maturing debt falls due before July of the maturity year.
      Total Borrowing Needs: When factoring in the projected $1.9 trillion federal deficit for FY 2026, the government may need to sell closer to $11 trillion in total securities to cover maturing debt and new funding needs.
      Seeking Alpha
      Seeking Alpha
      +4
      Why This is a Major Concern:
      Supply Challenge: The market has never had to absorb this volume of debt in such a short period, leading to concerns about "bumpy auctions".
      Declining Demand: Concerns exist that foreign buyers are rotating away from Treasuries into other assets, such as gold.
      Interest Rate Risk: If investors demand higher yields to purchase this massive supply, it could force interest rates higher across the economy, regardless of Federal Reserve actions.
      http://www.marketplace.org
      http://www.marketplace.org
      +4
      While some analysts argue that the $10 trillion maturing will be met with demand because investors (like money market funds) will reinvest the proceeds, the sheer scale of the refinancing at higher rates remains a critical focus for financial markets in 2026.

    7. @Lynn-r6r7e on

      +9
      A potential war with Iran is projected to be more akin to the Vietnam War than Iraq or Afghanistan due to Iran's superior military capabilities, challenging mountainous terrain, and a homogeneous, nationalistic population that would likely mount a protracted, multi-front guerrilla insurgency. Unlike the 2003 Iraq invasion, Iran is four times larger, with rugged geography hindering conventional mechanised warfare, similar to the challenges in Vietnam.

    8. @Lynn-r6r7e on

      The deepening strategic alignment between Russia, China, and Iran creates a high risk of escalating regional conflicts into broader, multipolar confrontations. While Beijing and Moscow prioritize economic, intelligence, and diplomatic support for Tehran to challenge US influence, direct military intervention remains a strategic risk rather than a certainty, as they weigh the costs of involvement.
      Russia Matters
      Russia Matters
      +4
      China’s Economic & Military Role: China provides significant support, purchasing over 90% of Iran's oil and supplying military equipment. Beijing has signaled support for Iran's sovereignty and security, viewing it as a strategic partner to counteract Western influence.
      Russia’s Strategic Calculation: Moscow views the Iranian crisis as a risk to regional stability but also as a way to distract the U.S. from the conflict in Ukraine. However, reports suggest Russia may hesitate to directly intervene in a military conflict, preferring to act as an "ally until the first serious challenge".
      The "Axis" Threat: The growing relationship—often characterized as an anti-US tripartite alliance—involves sharing intelligence, drone technology, and sanctions-evasion tactics. This partnership is driven by a shared desire to reshape the global order, with Iran serving as a crucial, albeit volatile, pivot in Eurasia.
      Risk of Escalation: Both Russia and China have warned that U.S. and Israeli actions against Iran could push the world toward a "perilous tipping point".
      Al Jazeera
      Al Jazeera
      +9

    19. @tedpaulus on

      Changes in Price Levels is not inflation. Inflation is the devaluation of the currency and can be indicated by changes in price levels. But prices going up due to supply chain issues is NOT inflation.

      Analysts need to begin using these words correctly.

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