"If the war doesn't end quickly, the effects on the global economy would be stagflationary, as happened during previous prolonged oil shocks. This means that inflation will rise, while production will decline. Central banks will also be forced to raise interest rates, with further negative repercussions on economic activity," the economist comments. Paul DeGrauwe, director of the Europe Department at London School of Economics.
What if the US-Israel-Iran war lasts much longer than four weeks?
"As the economy slows, tax revenues will decline, causing budget deficits and public debt to rise. Many governments may then decide to cut public spending, further exacerbating the contraction in economic activity. All this bad news will materialize if the conflict doesn't end soon. Let's hope that common sense prevails in Washington."
In which economies will pressures on oil and gas prices have the greatest impact?
"Net oil-importing countries in Europe, Asia, and Africa will be hit hardest. However, net oil exporters, such as the United States, will also be affected, as gasoline prices at the pump will rise there as elsewhere. In some ways, the United States is even more sensitive to this phenomenon, given the centrality of the automobile to the American lifestyle. Furthermore, for political reasons, rising gasoline prices will be particularly sensitive, because Trump has promised to reduce the cost of living. Instead, exactly the opposite will happen. Voters in November could make Trump pay for it. Unless he comes up with some ploy to cancel the midterm elections…
The two main European manufacturing industries, Germany and Italy, are the most exposed to energy crises. What are the prospects for industrial production in Europe?
"Industrial production will suffer, especially in Germany, where much of the production system was organized on the assumption that energy would remain cheap and abundant for a long time. This assumption has now been shattered, generating a huge structural problem of deindustrialization in Germany.
The risk of inflation in 2026 was marginal until a few days ago. What could happen now?
All countries will experience rising inflation. The extent will depend on the duration of the conflict, but also on any damage caused to the oil infrastructure of the Persian Gulf states. It makes little difference whether you are a net oil exporter or importer: higher crude oil prices will hit households in all countries.
The war in Iran was yet another step toward a world governed by the rules of force. Will the European Union find the strength to remain united?
"I hope so, but I fear it will be difficult. Too few European leaders are willing to take the step of considering the United States the European Union's number one enemy. Many EU governments still live under the illusion that they can negotiate agreements with Trump. They can't do so, because Trump's goal is to destroy the European Union.
What do you think of this new world order that is emerging with Trump II?
"You speak of order; I would rather speak of disorder. Trump is destroying the world order simply to satisfy his oversized narcissistic ego. He is only interested in showing the world how powerful he is. His malevolence is such that he uses this power to punish, exact revenge, and extort money, to put into his own pockets and those of his family. The United States is rapidly becoming the most corrupt country in the world. This will have consequences elsewhere as well, as other leaders imitate Trump's behavior. Fortunately, Trump's incompetence outweighs his malevolence. Therefore, he will end up making so many serious mistakes that American voters will reject him and his corrupt family. Again, unless Trump decides to cancel the next election.
