Expert Q&A: The real economic risk of the ongoing conflict in the Middle-East

1. Is Iran now effectively able to hold the global economy hostage via energy routes?
Given the threat to the Strait of Hormuz, does this give Iran disproportionate leverage over inflation and growth worldwide?

Total global shut down is unlikely Iran really isn’t able to hold the global economy hostage so long as this doesn’t drag on for more than a month or two. What it will do is dent growth, causing und-certainty and stagflation. The closest parallel we have is the first gulf war, where the war was won, but the fragile American and European economies took a hit from the increased energy prices and inflation. Just see the news about the oil refinery I think the uncertainty factor here is now the economic biggest problem. The conflict has spread fast and appears to be growing in intensity. This was unexpected. Absent a ground invasion the goals seem difficult to achieve. Because of this it might drag on unresolved for some time. 

2. Does this crisis strengthen Russia economically and politically? If Iranian supply becomes unreliable, do sanctions-hit exporters like Russia become more important to global energy markets again?

The crisis has dual effects for Russia - while the Russian economy might temporarily get a boost from higher oil prices and being a supplier of last resort, the bad news is this is unlikely to last long if Iran surrenders. Then oil prices are likely to drop further. Politically and militarily, the defeat of Iran would be a major loss to the Russians. It would eliminate Russian weapons manufacturing hub (Iranian drones) and reduce Russian influence in the middle east. It could be seen as a path to defeat the Russians in the long run in Ukraine, but I really don’t see this as a primary consideration for either the Americans or the Israelis. For the Russians, this might also be good news because it weakens the US and uses up lots of stocks of American military equipment 

3. Could the conflict accelerate a split into Western and non-Western economic systems?
Are we moving toward competing trade and financial networks built around Iran-aligned states versus Western-aligned ones?

There is no hope of such a split. Iran is a regional economic power in decline, as it arguably has been since 1979. The bigger ideological alignment comes from Russia. 

4. Is the world discovering that energy transition has failed as a security policy? Does the continued global dependence on Gulf energy show that decarbonisation has not actually reduced geopolitical vulnerability?

Quite the opposite - this conflict should show the significant vulnerability of internationally provided energy and why locally sourced energy would be better. The problem is the green revolution is still in its infancy. So much more needs to be done 

5. What would a prolonged Iran confrontation change permanently?

I doubt there are any real long-term issues here apart from risk adjustments and the possibility of inflation. The world has long seen this regime as problematic. Everyone had defensive and backup plans. The global economy can and will adjust to any short-run energy supply issues. My bigger worry is the global economy was already slowing, if not in recession. This could pull us into a deeper recession with larger consequences for a weakened lending sector.