WHICHEVER way the Iran war ends, its consequences will be felt for a long time to come. Its security, economic and diplomatic fallout has global implications. This will urge countries to reshape policy priorities in the face of changing realities and a fragmenting international order.

First, consider the economic fallout of the war. The economic toll will obviously be heaviest on the Middle East. But the damage to critical energy infrastructure and disruption in oil shipments and energy supplies have far-reaching global ramifications, affecting countries across the world. The price of oil and gas has soared, and international energy markets were thrown into turmoil by the war, from which the global economy will take time to recover. The International Energy Agency has described this as “the largest supply disruption in the history of the global oil market”. The world also confronts a shortage of natural gas. The destruction of gas facilities means full liquified natural gas, or LNG, production capacity could take years to rebuild. The energy crisis has forced countries to raise prices, order rationing and adopt austerity measures to reduce demand.

What this means is described by the IMF as an “abrupt darkening” of the outlook for the global economy dominated by downside risks and involving difficult trade-offs for countries. Its latest forecast in the World Economic Outlook warns of slower growth and higher inflation. The Fund estimates global growth at only 3.1 per cent this year, with headline inflation projected to rise, in what it calls a “sharp deviation” from the global disinflation trend of recent years. This could push the world into a recession.

The adverse economic........

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