The US president just announced a 5-day halt to strikes on Iran’s energy infrastructure. This most likely signals that Washington recognizes what further escalation of this conflict would cost. Everything now depends on the US finding a solution in just a few weeks – one that almost certainly means leaving the Iranian regime intact, despite regime change having been an explicit American objective from the start. It is urgent because the global economic pain is already materializing in at least three distinct but interconnected layers.
1. Energy, inflation and debt
Higher energy prices feed directly into inflation expectations – and therefore into the interest rates set by central banks and demanded by fixed-income investors. Recently, these higher interest rates have already exposed deep liquidity stress in private markets, which threatens to spill over into institutions who hold these assets – like pension funds. This alone could be a sufficient reason for the US to find a way to stop the conflict.
2. The AI boom's hidden supply chain
Less visible but equally significant is the threat to the inputs that power the artificial intelligence boom. Data centers and the computer chips that run them depend not only on cheap energy, but also on a set of industrial chemicals (like helium, sulphur and bromine) that are mainly sourced from the Middle East and are now caught in a disrupted supply chain. Since it was the AI boom that drove the majority of US stock market growth over the past three years, a sustained conflict puts that growth engine under direct threat.
3. The wealth effect and the American economy
The third layer is the large share of US consumer spending – the largest single driver of the US economy – that comes from high-income Americans, whose consumption is tied to the value of their investment portfolios. A sustained stock market decline, amplified by Gulf sovereign wealth funds pulling capital from US markets, could trigger a meaningful pullback in that spending, which could throw the American economy into a vicious downward spiral.
A narrow window for diplomacy
The current situation is straightforward: three simultaneous shocks – to energy prices, to critical technology supply chains, and to the wealth effect underpinning US consumption – arriving together would strain the global economy in ways that no single policy can easily offset. Without a genuine diplomatic breakthrough in the coming weeks, the world could be facing an economic crisis that rivals anything seen in a generation.
