‘Good for Russia, good for China, bad for America’: How the Iran war is reshaping global economies

That is the conclusion of investors, economists, and strategists around the world. The common thread isn’t fear of a specific catastrophe. It’s something more unsettling: the sense that a series of permanent structural shifts—in supply chains, in geopolitical alliances, in the balance of economic power—have been accelerated by a war that nobody in power fully planned for.

“It’s going to look fundamentally different for a while, no matter what,” said Steve Hanke, professor of applied economics at Johns Hopkins University. He summed up the new world order, defined by the winners and losers of this unfolding disaster, in three statements: “Good for Russia; good for China; bad for America.”

Even if the new ceasefire holds and energy prices recede, relief won’t come quickly—and the ripple effects of higher prices could still cause a global recession or even a depression. The Trump administration’s erratic military escalation, meanwhile, could be an even more disruptive force over time, breaking up longtime economic alliances and undermining the country’s status as the world’s most powerful economy.

The war nobody planned

Hanke, who has advised governments from Argentina to Estonia on monetary reform, said many of the problems stem from an initial assumption that the war would be over in a matter of days. It appears that the United States went in without accounting for the vast web of commodity supply chains running through the Gulf—and is now watching ripple effects spread into every corner of the global economy. This was a major planning failure, he said: “You better know all this shit’s going to hit the fan if you go to war. They clearly didn’t.”

Kate Gordon, an energy policy expert and former senior advisor at the U.S. Department of Energy, went further: “It is naive to think that this is just an isolated conflict and the strait will open and everything will go back to the same way it was,” she said. “We’re continuing to attack actual infrastructure, which means things beyond the strait are going to need to be rebuilt.”

Courtesy of Kate Gordon

The oil story looks dismal—the Strait of Hormuz has emerged as a global choke point; the national average in the U.S. is over $4 per gallon; and countries more reliant on Iranian supply have seen price surges of more than 50%. And yet Wall Street has continued to price in an early end to the conflict.

Even if that comes to pass, Hanke said, don’t expect cheaper prices at the pump anytime soon. His central point: There are two prices for any commodity. The physical price, paid when tankers actually unload cargo; and the paper price, traded on futures markets. When the war began, those two prices split violently. Physical oil in Asian markets spiked past $150 a barrel; the paper market never climbed that high. Oil loaded before the war takes four to six weeks to reach its destination, and that prewar inventory is only now arriving at ports. Once it runs out, the paper price will be forced to converge with the physical—and it has nowhere to go but up.

Robert Hormats, a former vice chairman of Goldman Sachs International who served as a senior aide to Henry Kissinger during the 1973 Sinai negotiations following the Yom Kippur War, added a structural reason for skepticism about a quick resolution. His central worry is that Iran, even if seriously damaged, could emerge as a “wounded bear”: hurt enough to be humiliated, but intact enough to still control the strait and continue backing groups such as Hamas, Hezbollah, and the Houthis that destabilize the region. “The longer it lasts, the more serious the likely scenario,” he said. A damaged but defiant Iran could use those levers again at any moment.

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Hormats pointed out that the Gulf states eyeing a post petro-state future “worked for years to establish the notion of stable countries where you can vacation … a nice place to do business, with good laws and tranquility.” They invited in tech giants and built financial hubs. The war has upended that project—and with it, maybe the confidence those states had in their close partnership with America.

Burt Flickinger, founder of Strategic Resource Group and a veteran consumer analyst, said he sees the attacks on glossy hubs such as Dubai, Abu Dhabi, and Riyadh as a sign things will get a lot worse before they get better. With this war, he said, “you crush the luxury malls, you crush the golf, you crush the sports, you crush the luxury living.” And, he added, “when luxury collapses, it’s a harbinger of complete catastrophe worldwide.”

No wonder the Gulf states are reportedly urging Trump to finish the job and not leave a wounded bear in their midst, wreaking havoc on their rebranded economies.

It’s not just about oil

Gordon, the energy policy expert, said the Trump administration isn’t grasping the particular nature of U.S. vulnerability to this war, “because they are acting as if they’re in the 19th century”—i.e., operating on the assumption that controlling resources and raw military power is sufficient. “We don’t live in that world anymore,” she said.

Gallo Images/Orbital Horizon/Copernicus Sentinel Data 2026

Beyond oil, the war has exposed a second, less-discussed energy choke point: Qatar’s liquefied natural gas (LNG) infrastructure, which suffered major damage from an Iranian attack. Qatar is the world’s largest LNG supplier, and roughly 20% of global gas supply moves through the Strait of Hormuz. “Qatar’s gas infrastructure delivery system was pretty seriously hit,” Gordon said, noting an estimated timeline of at least three years and maybe upwards of five to rebuild the damage done so far.

This is a big hurdle in the green transition underway around the world: Gas is the critical crossover between the fossil fuel economy and the electrified one, powering grids that run everything from steel plants to data centers while emitting less greenhouse gases than coal or fuel oil. “Everybody uses it,” Gordon said, “and it’s incredibly important, particularly to Europe and Asia.”

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And Hanke drew attention to another commodity whose supply chain is being choked off by the conflict: sulfur. When crude oil is refined, sulfur is a byproduct—and 50% of all traded sulfur in the world comes from the Gulf. Sulfur is the raw material used to make sulfuric acid, essential to fertilizer production and nearly every major metallurgical process, including copper smelting and steel production. “The manufacturing segment of the economy is damaged enormously if you get sulfuric acid out of the system,” Hanke said. “We have it now, but if this thing continues, they’re going to be running out.”

Flickinger zeroed in on diesel as a major problem, explaining that diesel powers the trucks and ocean freight carriers that move virtually everything Americans buy. With ocean container costs at record highs owing to the Iran war, he said the pressure will eventually show up on every receipt.

Stagflation’s return

The word most economists reach for to describe what they dread is “stagflation,” a portmanteau that combines “inflation” with “stagnation” and was popular in the 1970s, when the last great oil shocks ushered in an era of gas lines, double-digit-percentage unemployment, and shrinking purchasing power.

Wayne Winegarden, a senior fellow at the Pacific Research Institute, didn’t hem and haw while making a dire prediction: “If this persists,” he told Fortune about both the war in Iran and the closure of the strait, “I think it will cause a recession. It will feel stagflationary.”

This shock is landing on a U.S. economy already weakened before the first missile flew: Q4 2025 GDP growth disappointed; employment gains have been volatile; and affordability concerns were already mounting. Meanwhile, the threat of AI-related job cuts looms—something noted repeatedly by outgoing Federal Reserve Chair Jerome Powell. Now the Federal Reserve is trapped, with rates frozen at 3.50% to 3.75%, and rate cuts pushed to September at the earliest. The long-running, well-respected University of Michigan consumer sentiment survey dropped to 53.3 in March, among the lowest rating of the past five years and approaching the record low of 50 amid the inflation surge of June 2022. “It will feel like the inflationary ’70s,” Winegarden predicted.

Goldman Sachs estimates that the oil shock will suppress U.S. payroll growth by 10,000 jobs per month through year-end and push unemployment from 4.3% in March toward 4.6%. JPMorgan estimates global GDP growth could be depressed by 0.6 percentage points annualized in the first half of 2026, with consumer prices rising more than a full percentage point.

The farm picture is already severe. The key fertilizer urea is up 25% to 30%, with nitrogen and potassium fertilizer costs similarly elevated, just as farmers are receiving their lowest cost per bushel in 17 crop years. The American Farm Bureau Federation published an alarming report in February 2026 based on U.S. courts data, showing a 46% increase in farm bankruptcies for 2025, with a 70% increase in the Midwest and a nearly 70% increase in the Southeast.

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All this will hit the American consumer hard. Higher energy prices feed into higher shipping costs, which feed into higher food costs and higher health care input costs—plastics, pharmaceutical ingredients, IV materials—and eventually a general price level rise. Flickinger, the consumer analyst, said little cushion remains for many households.

For the first time in roughly 70 years, Flickinger noted that American consumers are simultaneously spending more in all 12 major monthly expenditure categories tracked by consumer economists: health care, local taxes, debt service, food, housing, transportation, utilities, insurance, entertainment, mobile, clothing, and education. Every category is up at once. At $86 per barrel, oil alone costs the average American $2,000 annually out of pocket. With oil now well above $100 a barrel, the $3,000 to $4,000 in household savings Trump promised from higher refunds during the tax season, Flickinger said, “gets burned up with Zippo lighters before the money even goes to pay the rent.”

Of the experts Fortune talked to, all agreed that a U.S. or global recession was certainly very possible, depending on the fallout in the Middle East. Flickinger went a step further, raising the prospect of a severe, prolonged downturn of the type unseen for several generations: something resembling a depression.

A new world order

Step back from the U.S. price data, and the reordering of global power dynamics is striking and unsettling. “Russia is just an unambiguous huge winner,” Hanke said. Everything Russia sells, especially oil, is now being sold in higher volumes at much higher prices.

Europe, meanwhile, is shouldering the negative effects—absorbing a second enormous energy shock on top of the one it inflicted on itself by cutting off cheap Russian gas. Germany, where roughly 23% of GDP comes from industry, is watching its factories hollow out as it contends with the highest electricity prices in Europe.

As for the U.S., despite the triumphalist narrative being touted by the White House, the war is likely to undermine its standing as the world’s economic leader—and give its fast-growing rival, China, a boost. “The U.S. reputation has been damaged tremendously,” Hanke said. “No one is going to want to really trust and play ball with the United States for a long time.” That reputational damage and the crises caused by skyrocketing oil prices is driving a realignment of the Global South and BRICS nations toward China, which emerges from this conflict as the primary beneficiary of diminished American credibility. Although the dollar is still overwhelmingly dominant as the international reserve currency, analysts have noted cracks in the “petrodollar” regime, in which all oil trades from the Middle East were paid for in dollars, and reinvested back into Treasury bonds.

Courtesy of Gaja Capital

Gopal Jain, managing director of Gaja Capital, one of India’s oldest private equity firms, is seeing the collateral damage firsthand. India imports roughly a quarter of its energy, much of it from the Middle East, and the war has battered Indian stocks. Three of Gaja’s portfolio companies had successful IPOs last year and have seen their share prices hammered since. Despite this, he said he finds a thread of hope heading into more turbulent times ahead: “Human beings are not the strongest species, we are just the most adaptable species.” And we will have much to adapt to.

An ‘un-modelable’ future

Hanke saved his most pointed critique for the political paradox unfolding in Washington. Trump was elected, in part, on a promise of no foreign wars and a return to American economic strength. The defense budget has now hit $1 trillion, with the administration asking for $1.5 trillion in its latest budget—easily the largest increase since the Korean War, some 70-plus years ago. “That’s a massive militarization, completely the opposite of what he told MAGA,” Hanke said.

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That’s unlikely to play well in the U.S. electorate, nor will a comment Trump made to a private audience at a White House Easter event, attended by the Associated Press: that the federal government soon wouldn’t be able to afford Medicare and Medicaid because it needed to prioritize military spending. With the national debt climbing past $38 trillion, and then $39 trillion, under Trump’s year-and-change back in office, interest costs are larger than defense and education spending combined, forcing tough choices.

Jain, whose three decades building private equity in India have taught him to take the very long view, said he is not panicking. He framed this moment as “turbulence rather than free fall.” But even he acknowledged that what is unfolding is not normal, and he declined to predict what comes next.

“Can anyone actually talk about that?” He paused. “It’s un-modelable. We can indulge ourselves by attempting to sound sensible and scientific, but it’s radical uncertainty.”