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Global economy faces protracted war inflation despite fragile Iran-US ceasefire

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While the military dimension of the conflict in Iran appears to have reached a temporary standstill, its impact on global prices remains pervasive. Economists project that the disruptions to the global oil supply, which have persisted for over a month, will continue to trigger volatility across the broader economy.

According to data cited by NerdWallet, fuel prices have surged by more than 40% since February and are not expected to decline in the near term. Airfares have also recorded significant increases during this period. New price hikes across diverse sectors, including food, apparel, and electronics, are deemed likely in the coming months, adding further pressure to already persistent inflationary trends.

The escalation began on February 28, following the launch of strikes by the US and Israel. Iran responded by closing the Strait of Hormuz, a critical transit point for global oil supplies and other essential commodities. Prior to the attacks, Brent crude, the global oil benchmark, was trading at approximately $80 per barrel; it subsequently surged past the $100 mark as the conflict intensified.

The White House has maintained an inconsistent stance regarding its objectives and the anticipated duration of the war, though it has exchanged rhetoric with Tehran regarding a potential conclusion to the hostilities. Tensions reached a critical peak when US President Donald Trump established a Tuesday deadline for a ceasefire agreement, threatening to strike Iranian infrastructure and destroy an entire “civilization” should no deal be reached.

Less than two hours before the expiration of Trump’s deadline on Tuesday night, a two-week ceasefire was secured to allow for continued negotiations toward a long-term agreement. During this pause, Iran agreed to reopen the Strait of Hormuz. However, the ceasefire has had an unstable start. On Wednesday, Iran accused the US of violating the terms of the agreement, citing continued Israeli strikes in Lebanon.

Following the announcement of the ceasefire on Tuesday night, oil prices retreated sharply to approximately $95 per barrel, while US equity markets rallied.

Despite this localized relief, analysts warn that the de-escalation may be temporary and that the economic consequences of the conflict are already deeply embedded. The impact of elevated oil prices is diffusing through the global economy, as international shipping, manufacturing, and food production remain heavily dependent on petrochemicals and natural gas. Consequently, rising energy costs are expected to drive up the price of food, commercial goods, and daily necessities, further straining household budgets already diminished by years of inflation.

The economic fallout of the war is compounded by the ripple effects of tariffs that were in place prior to the start of hostilities. On March 2, shortly after the initial strikes, the Yale Budget Lab published an updated assessment regarding the impact of tariffs on consumer prices. The report found that the costs of imported consumer goods passed on to buyers ranged from approximately 40% to 76% for “essential goods” such as electronics and clothing, and between 47% and 106% for “durable goods” like motor vehicles and household appliances.

The current inflation rate in the US stands at 2.4% according to the Consumer Price Index (CPI), with the next update covering March scheduled for release on April 10. Inflation has remained between 2.3% and 3% over the past year, down significantly from the 40-year high of 9% recorded in June 2022.

Analysts at Wells Fargo, in a report dated March 23, cautioned against drawing extreme conclusions from early data. The note recalled that tariffs proposed by the president last April were viewed by some as a guaranteed trigger for an economic recession that ultimately did not materialize. While analysts noted that the surge in crude oil prices will likely drive global consumer price inflation, they suggested that political and economic constraints would probably shorten the duration of the war. The note added that while the risk of extensive structural damage to Persian Gulf energy infrastructure remains, it is believed both sides would prefer not to destroy the resources that provide nearly all of the region’s revenue.

Concurrently, the Organisation for Economic Co-operation and Development (OECD) stated that the war in Iran will test the resilience of the global economy. An OECD report released March 26 forecasts that inflation in the US will average 4.2% in 2026, reflecting higher energy prices due to oil market disruptions. The report warned that a protracted conflict in the Middle East could trigger an even more severe price shock.

Recession risks grow

According to investment banking firm Macquarie Group, if the ceasefire fails to hold and the war continues into June, there is a 40% probability that oil could reach $200 per barrel. An increase of this magnitude could push consumer prices even higher, rattle markets, and drive an already fragile economy toward a recessionary cliff.

Daniil Manaenkov, an economist and US forecasting expert at the University of Michigan, stated that if oil prices remain between $150 and $200 per barrel for one or two months, a recession becomes highly probable.

Evidence suggests this breaking point could arrive sooner than anticipated. Consumers tend to alter spending habits when concerned about high prices or job security. Manaenkov noted that consumers are already dining out less, opting for cheaper store-brand products, and reducing travel. This decline in spending could slow growth and pull the economy closer to a recession.

The International Monetary Fund (IMF) echoed these concerns in a March 30 blog post, warning that a prolonged conflict could drive up prices and slow economic growth worldwide. IMF analysts noted that the duration of the war, its potential expansion across the Middle East, and the resulting damage to infrastructure and supply chains will determine the extent of economic devastation in the coming days, weeks, and months.

Key products and services facing price increases

Manaenkov noted that it can take six to 12 months for rising energy prices to fully filter through to all other consumer costs. While gasoline prices are high, the primary driver of overall cost increases is diesel fuel. Because the majority of freight transport relies on diesel, when those prices rise and remain elevated, almost every other sector follows.

Manaenkov described the process: “The timeline typically starts with an energy response, followed by an impact on shipping costs, then consumer products, and finally the services sector. While the impact on services is weaker than that seen in energy prices, it can still be quite significant.”

The areas likely to see price increases as a result of the war in Iran include:

All goods requiring diesel transport: Diesel fuel powers trucks, freight vehicles, construction equipment, agricultural machinery, and maritime vessels. As the cost of operating these vehicles rises, additional costs are added to all production materials and finished goods. According to AAA data, diesel prices have increased by approximately 50% since the start of the war, reaching $5.67 per gallon on Wednesday.

Air travel: Airlines operate on jet fuel, and costs have already risen sharply. In response, carriers have begun increasing ticket prices. Some companies are reportedly planning to cancel flights to save on fuel costs, which will increase competition for remaining seats and drive travel prices higher.

Food: Food production is facing multiple simultaneous pressure points from high prices. Beyond the diesel required for farm machinery and delivery trucks, fertilizers represent a major challenge. Nitrogen-based fertilizers require liquefied natural gas, while phosphate fertilizers—made from urea, ammonia, and sulfur—are critical for the production of staples such as wheat, corn, rice, and fruit. Approximately one-third of seaborne fertilizer passes through the Strait of Hormuz. If farmers cannot access affordable fertilizer now, they may be unable to plant sufficient crops during the spring season, eventually resulting in higher prices.

Plastics and packaging: Plastic production requires oil and natural gas. With approximately 85% of Middle Eastern polyethylene exports passing through the Strait of Hormuz, the price of raw materials for plastics is expected to rise. This affects water bottles, credit cards, furniture, household goods, food containers, automotive parts, and anything sealed or wrapped in plastic.

Synthetic clothing: Most modern apparel is produced from petrochemicals, including polyester, nylon, spandex, and fleece. The garment industry, particularly fast-fashion manufacturers, depends on synthetic fibers sourced through supply chains passing through the Strait of Hormuz. As raw material costs rise, fabric costs will follow, impacting garment prices.

Technology and electronics: This industry is facing dual disruptions. The Strait of Hormuz is a critical shipping route for graphite raw materials essential for lithium-ion battery production, while helium gas is required for semiconductors, fiber optics, and medical devices. Supply disruptions could increase the price of smartphones, laptops, electric vehicles, energy storage systems, and diagnostic medical equipment such as MRI machines.

All aluminum products: Gulf nations provide approximately 9% of the global aluminum supply. These countries also account for 21% of US unrefined aluminum imports and 13% of processed aluminum imports. Aluminum is a fundamental material for construction, vehicles, aircraft, power transmission, and appliances; export delays could raise the prices of construction products, industrial equipment, planes, and automobiles.

Automobiles: Increases in plastic and aluminum prices, combined with other supply chain disruptions, are likely to drive up vehicle costs. Manaenkov noted that production disruptions in South Korea or Japan could cause issues for US manufacturing, contributing to vehicle shortages and increasing prices for both new and used cars.

Vulnerability in oil flows

Even if the war concludes, shipping flows through the Strait of Hormuz may not return to normal immediately, and fuel prices in the US may not necessarily drop. Warnings persist that Iran could continue to exercise control over oil flows, keeping global and domestic fuel costs high. In other words, even if the US ends its intervention entirely, Iran retains the leverage to maintain economic pressure.

Manaenkov compared the situation to a plumbing system: “This is not like a faucet you just turn on and off. Once you stop pumping, you must expend significant resources to restart the flow.”

While the conflict is currently paused and traffic in the strait is slowly resuming, observers note that the war is far from over and unrest remains widespread across the Middle East.

On Wednesday, just hours after the temporary ceasefire with the US was established, an Iranian drone reportedly struck a pumping station on Saudi Arabia’s critical East-West pipeline. This pipeline, used to bypass the Strait of Hormuz, carries approximately 7 million barrels of crude oil per day from the Gulf to the Red Sea. The damage caused by the strike could further deepen the energy crisis.

Diplomacy

Defense Priorities director warns US air strategy in Middle East faces tactical limits

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The collapse of a tentative memorandum of understanding between Washington and Tehran, coupled with the diminishing strategic returns of American air power, has left the United States locked in an unsustainable, low-intensity conflict with Iran, according to Benjamin Friedman, Policy Director at the Washington-based think tank Defense Priorities.

Speaking in an interview on the YouTube channel Harici with host Sarp Sinan Hacır, Friedman attributed the failure of the short-lived US-Iran memorandum primarily to the Trump administration’s diplomatic missteps, vague draft language, and unrealistic expectations regarding a comprehensive settlement.

“Both sides really deserve some blame, but the Trump administration deserves the bulk of the blame for drafting an agreement that was so vague on key terms,” Friedman said, citing ambiguities surrounding the timeline for unfreezing Iranian assets and the scope of American commitments to restrain Israeli military operations in Lebanon.

Friedman emphasized that deep-seated mistrust in Tehran, exacerbated by repeated instances where diplomatic engagement was followed by Israeli or American military strikes, led Iranian negotiators to adopt an unyielding posture. At the same time, he noted that Iran likely miscalculated by using disruptions in the Strait of Hormuz to aggressively force leverage.

“The Trump administration remained intent on this sort of grand bargain that would restrain Iran seeking weapons development… and I think they continue to misread the Iranian willingness to sign that kind of deal,” Friedman noted, adding that Tehran viewed its leverage over the Strait of Hormuz as essential despite the risk of provoking further strikes.

Expressing deep skepticism over the prospects for a lasting diplomatic breakthrough, Friedman criticized the administration’s reliance on informal envoys such as Steve Bannon and Jared Kushner over professional diplomatic channels, predicting that the baseline outcome will remain an unpredictable, episodic conflict.

“What’s more likely is a kind of on-off-again kind of war—sort of what we’re in now, where we have occasional strikes, with the United States perhaps by accident adopting the Israeli model of ‘mowing the lawn’ periodically,” Friedman said.

Addressing the efficacy of US air power, Friedman argued that military operations against Iranian targets have reached a point of diminishing returns. While early strikes successfully eliminated critical high-value assets—such as over-the-horizon radar systems that targeted anti-ship missiles—Iran’s ballistic missile and long-range drone capabilities remain largely intact and operational.

He pointed to a recent strike on a base hosting US personnel in Jordan, launched from western Iran over a distance exceeding 1,000 kilometers, as evidence of Tehran’s sustained strike precision and the tactical limits of American interdiction efforts.

“The war is a failure for air power even in a tactical sense,” Friedman stated. “Initially, we looked at it and said we had a lot of success in destroying targets, but as more information came out, it turned out they had maybe more than half of their missiles and launchers survive the initial phase of the war.”

Friedman observed that the global proliferation of low-cost, high-precision guidance technology has permanently altered the strategic landscape, neutralizing the traditional invulnerability of forward-deployed US installations. “The precise effects of air power that used to be almost a monopoly of the United States… is actually making our posture in the region less sustainable,” he said, warning that similar vulnerabilities would be vastly amplified in any potential high-intensity conflict with China.

As an alternative to open-ended military engagement, Friedman suggested that Washington consider a complete military withdrawal from the region, even if it entails accepting Iranian transit fees on commercial shipping through the Strait of Hormuz. “The cost of preventing that through perpetual outbursts of warfare is much higher than just accepting it,” he noted.

Turning to regional dynamics, Friedman addressed Israel’s current absence from active strike operations against Iran, characterizing it as a calculated move to preserve its own air defense interceptors while relying on Washington to bear the operational and political burdens of containment.

On European security and the broader alliance structure, Friedman offered a critical assessment of the NATO summit in Ankara and the administration’s “NATO 3.0” concept. He described the white paper led by Defense Secretary Pete Hegseth as an effort to coerce European states into escalating defense expenditures and purchasing American hardware under the threat of reduced security guarantees, rather than executing a structured, strategic US posture adjustment.

“This is not a real US withdrawal; it’s a kind of pressure to up your loyalty in a particular way,” Friedman said, noting that major European powers such as Germany, France, and the UK lack a compelling existential incentive to construct independent, large-scale conventional war-fighting capabilities.

Regarding bilateral relations with Ankara, Friedman noted that US-Turkish tensions have eased considerably following the shift in American posture in Syria and progress toward resolving long-standing friction points, including the F-35 program and S-400 procurement. He added that while Israeli leadership under Prime Minister Benjamin Netanyahu has expressed frustration over Washington’s constructive engagement with President Recep Tayyip Erdoğan, the White House has maintained its strategic course despite pressure from domestic pro-Israel lobbying groups.

Addressing internal Republican Party dynamics, Friedman highlighted the evolving public stance of Vice President J.D. Vance, whose cautious criticism of Israeli influence and emphasis on divergent national interests reflects broader ideological shifts within the conservative base.

“Vance is more representative of the shift in the Republican Party,” Friedman said. “He’s criticizing them in a limited way and saying, ‘Our interests are different.’ From the perspective of those of us who would like the United States to have a more distant relationship from Israel, it’s progress.”

Looking ahead to the upcoming US midterm elections, Friedman anticipated that a loss of congressional control by the Republican Party would severely curtail the administration’s domestic executive overreach, though its structural impact on foreign policy execution and Middle Eastern operations would remain comparatively limited.

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UK Prime Minister Andy Burnham pledges full support to Ukraine in meeting with Zelenskyy

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UK Prime Minister Andy Burnham has met with Ukrainian President Volodymyr Zelenskyy in Portsmouth, England.

Zelenskyy is the first world leader Burnham has met in person since taking office, with the prime minister committing to building a “firm partnership” between the United Kingdom and Ukraine.

Demonstrating their support, the two leaders toured a military base in Portsmouth where 200 Ukrainian troops are currently undergoing naval training exercises.

Burnham described his meeting with the Ukrainian president as “warm” and said he plans to visit Ukraine soon.

“We will build this together and address the various issues President Zelenskyy is facing, many of which we discussed today,” Burnham said.

The meeting follows an announcement by London that it will share intellectual property rights to assist Kyiv’s war effort.

The new prime minister announced that the UK will share the “Stone Cloak” electronic warfare system—which is fitted to drones to prevent detection—and will assist Ukraine in mass-producing the technology.

Burnham has focused primarily on domestic matters since replacing Keir Starmer, who faced criticism from elements within his own party for spending too much time abroad and focusing heavily on foreign affairs.

However, Burnham sought to signal continuity in Britain’s policy toward Ukraine. In one of his first phone calls after becoming prime minister last week, Burnham invited Zelenskyy to visit the UK “as soon as possible.”

Starmer spent his final full day as prime minister in Kyiv, where he announced £255 million in funding for Ukraine.

Speaking to Sky on Monday, Zelenskyy said his telephone conversation with Burnham had been “very good.”

The Ukrainian leader noted that Starmer had previously assured him that “the new government would maintain the policy of supporting Ukraine during the war.”

The new prime minister told the Ukrainian leader it was “no coincidence” that he was his first international visitor since moving into Downing Street.

“The purpose of this is to send a very clear message. We stand 100% with Ukraine, I personally stand 100% with you, and I will fully deliver on every commitment this country has made to Ukraine,” Burnham said.

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Ukraine targets first prototype of European Freyja missile defense system in early 2027

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As Ukraine continues to lobby allies for new weapons capabilities to counter Russian missile strikes, the country aims to have a prototype of the Freyja anti-ballistic system, developed in partnership with European allies, ready in the first half of next year.

David Aloyan, deputy secretary of Ukraine’s National Security and Defense Council and director of the Freyja project, stated—as reported by Reuters—that an international steering committee tasked with calculating research and development costs will meet for the first time in the near future.

The anti-ballistic coalition was officially established two weeks ago at a summit held in the French capital, Paris. The summit was attended by leaders of 10 European nations, including Ukrainian President Volodymyr Zelenskyy, alongside roughly 12 defense industry contractors.

Providing details on the timeline, Aloyan said: “We have an ambitious goal because we are working on a very tight schedule. We aim to have a viable prototype that can show its first practical results in the first half of next year.”

Ukraine remains chronically dependent on US-made Patriot air defense systems, which are currently the only weapons capable of reliably intercepting Russia’s hypersonic and high-velocity ballistic missiles. However, Patriot deliveries have faced persistent disruptions driven by political fluctuations, low inventory levels, and extended production cycles.

The Russian military intensified its ballistic missile strikes this month against the capital, Kyiv, and the southern port city of Odesa. Facing salvos of dozens of missiles, Ukraine was unable to destroy the majority of incoming targets due to a severe shortage of interceptor munitions.

The Ukrainian government has indicated that it is prepared to contribute a launch vehicle and an interceptor missile to the Freyja initiative. In comments made this month, President Zelenskyy remarked that the project has now become purely a “matter of testing,” expressing hope that the system will become operational within a year.

Kyiv expects its allies to provide specialized expertise and technology in advanced radars, sensors, and missile guidance and control electronics. Defense contractors participating in the project include Eurosam—the consortium behind the SAMP/T system—as well as Leonardo, Thales, and Saab.

Fire Point, the Ukrainian missile and drone manufacturer that developed the Flamingo cruise missile, announced that it will serve as the primary industrial partner for the project. The company disclosed last month that it had reached an agreement with German defense producer Hensoldt to supply the radar components required for the initiative.

The Freyja project stands out as an effort to construct a lower-cost alternative to the Patriot system, on which many European nations also rely. Other European air defense assets, such as the Franco-Italian SAMP/T and the German-made IRIS-T, have not yet demonstrated sufficient operational capability in intercepting ballistic missiles.

Zelenskyy likened the operational framework of the Freyja coalition to a Lego arrangement, in which defense industry leaders assemble interconnected components.

Emphasizing the flexibility of the design, Aloyan noted that manufacturers have been tasked with developing a system architecture featuring interchangeable components, stating:

“The core logic of this system is that it possesses an open architecture. If Denmark says, ‘I want a Freyja system configured with a Danish-made Weibel radar,’ that is possible. If Sweden states that it wishes to integrate a Saab system, that presents no issue either.”

Aloyan added that establishing a dedicated administrative body or fund to direct all project contributions and secure stable, continuous financing remains among the options under consideration.

The Ukrainian official stressed that direct corporate participation alongside sovereign governments would streamline bureaucracy, concluding: “The coalition must advance on practical grounds rather than political ones.”

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