The main global economic risk associated with the renewed war against Iran is an energy price spike. (Regional problems are very easy to see.) I discussed energy price spikes in Section 5.4 of Interest Rate Cycles: An Introduction. A very short-term spike would not matter that much, rather the risks are of an extended period of a reduction in energy exports from the region. Once again, political risks emanating from an erratic American executive overwhelms traditional econometric business cycle analysis.
It is possible to see a way to a relatively rapid end to this this phase of the conflict — Israel and the United States and other allies have total control of the air in terms of conventional air weapons. There are indications that Iran remains willing to make peace.
However, the statements of the American leadership are shambolic, and there is no clear war aim that is achievable. Without committing boots on the ground to occupy Iran, discussions of regime change are fantasy. Meanwhile, it is entirely possible that Iran has far more unconventional drones than the U.S./Israel have interceptors that they are willing to commit. The striking power of groups aligned with Iran is unclear to me, but it appears that they have been weakened ahead of this (although future recruitment will be easier).
The Trump administration instinctively knows that committing ground troops would be a political disaster ahead of midterms, and so Iran is in a much better position than the balance of conventional forces suggests. (As per Clausewitz: “War is a continuation of politics by other means,” and Iran’s political goal — survival of the regime — is more feasible than American objectives.)
The long-term consequences of this adventure are likely to be disastrous, but it is entirely possible that they will not be seen in the very short time frames that modern politics seems to run on.
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(c) Brian Romanchuk 2026
