We are at the precipice of aglobal economically devastating period as a result of a rapidly intensifyingand potentially prolonged war in Iran. It’s not just the war itself, rather thegeographic region in which it takes place, the Strait of Hormuz, through whichare large percentage of essential global trade passes.

The crisis is a next level game-changerwhose international and domestic impacts will be far deeper and broader thanpost 9/11, 2008 financial crisis and the 2019 pandemic combined.

The war’s economic impacts arebeing felt in all commercial sectors and are spilling fuel on a smoldering pileof instability that has been festering for years.

Even for developed countries, foodsecurity and runaway debt levels will hinder each government’s ability tomaintain any semblance of law & order as the war progresses and devolvesinto a nasty quagmire that will deepen an already fractious socio-economic-politicallandscape.

“Something’s Gotta Give”

Here is a short list of the simultaneousconfluence of factors that could accelerate the burning fuse:

·      Military Invasion Forces. Any invasionforce with the intention of remaining for any length of time is a high-risk andexpensive endeavor. Already Israel has pushed into southern Lebanon for thepurposes of creating a 30-mile buffer zone. The 31st US Marine Expeditionary Force,specializing in amphibious assaults, and other American ground troops, arepre-positioning for an incursion into Iranian territory if required.

·      Commodity shipments on hold. Oil, natural gas, food andother essential commodities maritime shipments are stalled, a de factoblockade by Iran, in the Strait of Hormuz. In the meantime the US has imposed acounter blockade on Iranian vessels.

·      Historic world debt. One unsettling component is theprivate capital market. Though the sector is opaque with respect toinformation, anecdotal stories point to nervous investors withdrawing theirfunds. It is estimated that the private equity market holds $768 billion instressed debt, leveraged loans and direct lending markets - defined as imminentdefaults, bankruptcy and debt restructuring.

FOOD SECURITY

Natural gas is critical in the productionof fertilizer. Timing is everything for northern hemisphere countries forspring planting. Less fertilizer will mean far less yield and inevitably higherselling price for such foodstuffs.

Commodities are priced in USdollars (USD) thus requiring developing and emerging countries to purchase USDand then buy foodstuffs. Even though they have access to the international debtmarkets to borrow USD to supplement their USD foreign reserves, it’s more of anissue whether they can obtain the required fertilizer for their needs.

Even if they can purchase amodest quantity, their debt load will have increased exponentially, perhaps tothe point that they may be forced to reduce food subsidies which are alreadyheavily subsidized. Historically this has triggered violent civil unrest.

The most recent widespread andprolonged civil unrest was the Arab Spring 2010-2012 encompassing many MiddleEastern and North African countries. Under the current crisis scenario, thisviolent conflagration will occur in far more countries notably Southeast Asiawhose foodstuffs come through the Strait of Hormuz.

Even those countries that arehighly food self-sufficient will not have enough fertilizer this spring toproduce robust yields even with the most favorable weather as well as petroleumproducts to power their farm machinery, now at elevated prices. The sameapplies to spare parts.

To avoid internal destabilizationand protect their citizenry, many countries are imposing food exportrestrictions including China. Furthermore, China, as the second largestexporter of fertilizer after Russia, is applying export controls.

Food, like most commodities, arepriced in US dollars. Most developing countries struggle to maintain enoughforeign reserves (USD dollars) for commodity purchases. A spike in energyprices makes government unable to secure food and natural gas for fertilizerproduction for spring planting.

Even a modest increase in foodprices, often heavily government subsidized, can trigger riots and potentiallyprolonged civil unrest, the same script that has played out for decades.

This crisis deeply hurts family-runoutfits who encounter the vicious cycle of skyrocketing commodity prices. Theylose business thus less revenue for essentials thus cutting back on operationsto save fuel. Many family businesses are idle or near that point.

Domestically in the US, this samescenario is more plausible that one can imagine and not just among the poor andlower middle class. For months, the middle class has found itself strugglingfinancially with high inflation, job losses or stuck wages requiring ahousehold to have two jobs to pay for the basics.

The following chart entitled FoodInsecurity by State, data provided by the USDA and published by VisualCapitalist, is the average for the period 2022-2024 comprising 32,719households. The USDA defines food insecurity as “consistent access to adequate foodat some point during the year, driven by limited financial resources.”

ENERGY SHORTAGE

Maritime Hostages in the Straitof Hormuz and Oman

To provide the enormity of thiscrisis, according to S&P Global Market Intelligence there are 500 tankersin the Persian Gulf (located north of the Strait of Hormuz unable to leave withproduct) and 300 in the Gulf of Oman (located south of the Strait of Hormuz unableto enter to pick-up petroleum product). Normally 125 tankers daily pass throughthe Strait of Hormuz.

Port of Bab el-Mandeb

The aforementioned port and RedSea represent the present-day workaround for maritime traffic on the Red Sea tothe port of Yanbu via Saudi pipeline. There are two caveats to this option:

Firstly, the Saudi pipeline’s operatinglimit is 5 million gallons/day but it falls far short of the amount transportedby oil tankers. Furthermore, the pipeline has not been tested to operate atfull-capacity for an extended period of time.

Secondly, the Red Sea shores aredominated by the Houthis just as the Strait of Hormuz is dominated by Iran. TheIranian-backed Houthis are close enough to launch drones at oil tankers andother vessels, not to mention the aforementioned Saudi pipeline.

The following chart entitled OilSupply Chokepoints provided by the US Energy Information Agency (EIA) andpublished by Visual Capitalist:

DEBT: THE RED ECONOMIC MENACE

Alarming debt levels

Countries already deep in theeconomic red, can seek international loans to reduce the risk of internalstrife. But these additional loans will push them further into the debt hole.

Nonetheless, the leadership iswilling to pay the short and long-term price because the alternative is anavoidable humanitarian crisis and violent unrest that could oust them frompower. Kicking the can down the road is their best option.

The following chart entitled GlobalGovernment Debt Hits $111 Trillion provided by the International MonetaryFund (IMF) in 2025 and published by Visual Capitalist.

The debt breakdown by country isarticulated in the following chart entitled Global Map of Government Debt in2025 provided by the IMF and published by Visual Capitalist.

Even if there was no debt crisis,all the money in the world is unable to guarantee safe transport foodstuffs andessential materials through war zones to storage facilities and distributionnetworks.

At the micro-level, there hasbeen a post-pandemic growing consumer debt particularly in credit cards andauto loans. Consumers have less debt relief because of tighter banking andregulatory laws to supposedly control money laundering.

This trend disproportionatelyhurts the lower socio-economic demographic. Many of those in that alreadyfinancially stressed group are automatically “disqualified” through biasedalgorithms for even short-term credit for legitimate purchases.

For the general public, it is notinconceivable before Memorial Day, if the Iran War intensifies that rationingmay be imposed on fuel similar to what happened after the Yom Kippur War in October1973. Fueling at gas stations (gallon limitation) was permitted depending onthe day and odd/even last number of license plates.

AI Devoured by the Black Widow

Ironically, with respect toelectricity, the AI industry may be placed on pause by municipalities becauseof their dominant use of electricity for their operations. Already AI haseliminated hundreds of thousands of jobs.

AI is in the process of eatingits young by eliminating their creators, notably tech workers and support staff,as AI firms lay off thousands. AI development itself will be at a standstilluntil the war is over and the Strait of Hormuz is open.

Potential Dystopian Scenarios:

The following is the onceso-called paranoid prepper’s rapidly developing worst nightmare for which mostpeople are not prepared, operationally or psychologically:

·      Social instability and civilunrest everywhere, especially in sanctuary cities where it’s not uncommon for criminalsspend overnight in jail for violent crimes. Shift to survival even in developedcountries amongst highly educated citizens.

·      Exploding crime rates for thepurpose of survival by once law-abiding, financially table households such asrobberies and looting.

·      Massive rallies against PresidentTrump to stop the war, “war crime” accusations because of humanitariansuffering globally.

·      For this reason, the GOP may becrushed in November midterms by blaming Trump, not because of his militaryforay into Iran, rather the economic consequences of Iran’s retaliation byclosing the Strait of Hormuz.

·      Law enforcement and the long-termdeployment of the National Guard with the imposition of curfews and lockdowns.

Conclusion & Takeaways

With the equally obstinate and determinedPresident Trump and Iranian leadership engaged in a Mexican standoff, therewill be more serious economic fallouts that will impact the ordinary citizenglobally. Economic fallouts always result in civil unrest and probablypolitical upheaval in some regions. The issue is its intensity and duration.

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The CeruleanCouncil is a NYC-based think-tank that provides prescient, beyond-the-horizon,contrarian perspectives and risk assessments on geopolitical dynamics andglobal urban security.