As I set out to write this piece, stock market screens were covered in red, signalling declines in prices. By the time I had finished it, they had turned green, reflecting gains, though not enough to offset the losses incurred in the opening days of the war and its immediate repercussions.
What changed their course was US President Donald Trump’s announcement that the war on Iran might end soon. As a result, the price of oil fell to below $90 per barrel after having spiked to $120 amid fears that a protracted war would drive the price beyond the $147 per barrel line reached in 2008.
It is impossible to predict what colour will dominate the financial market screens by the time this article reaches readers. Will it be the red of panic? Or will it be the green of relief as traders begin to recoup their losses?
The only person who can stop the war immediately is Trump. Regardless of its outcome, he is in a position to promote a narrative of resounding victory and add it to the list of his other “achievements”. He will be cheered by his devoted supporters while others will also join the procession, hoping for a durable ceasefire.
But even some of his most diehard supporters must be experiencing creeping doubts about his promises of no more foreign adventures. A man who has sought a Nobel Peace Prize on the strength of claims to have prevented or halted several wars has now embroiled his country in a war that, according to a Reuters poll, is supported by only 27 per cent of the US public.
Moreover, it is “a war without a strategy,” as the UK magazine The Economist put it. Observers find it hard to discern its objectives. Is the goal to prevent Iran from developing nuclear weapons capabilities or is to destroy Iran’s naval fleet and ballistic missile systems? Is the aim regime change or simply to decapitate the regime?
One thing appears certain: the hostilities were launched with no regard for how others would react and how the war and its aftermath would impact those who bear no responsibility for its outbreak.
Trump has said that he wants to weaken the dollar to increase the competitiveness of US goods, facilitate exports, and curb imports. But the dollar has now risen because investors see it as a safe haven in the short term.
He has repeatedly criticised the US Federal Reserve for failing to lower interest rates to encourage investors, stimulate consumer demand, and revive the real estate sector. Yet, he has created a situation that makes any reduction in rates more difficult, as prices are now rising due to the increased cost of energy both as fuel and as a vital input in manufactured goods and the consequent effects on the prices of fertilisers, food, and transportation.
Rising fuel prices revive the spectre of widespread unemployment and recession, raising the risk of stagflation. This is a troublesome phenomenon for central banks because it reduces their flexibility in directing monetary policy, as they are caught in a dilemma. Should they tighten monetary policy to curb inflation, or should they ease it to rescue a fragile labour market and bolster growth?
I believe the Federal Reserve will wait a while in order to assess current trends before making a determination one way or the other.
This uncertainty will lead investors to shy away from investing in US financial assets, which now require greater hedging against risk. Despite the fact that the US has been a net exporter of natural gas since 2017 and of oil since 2020, its consumers and producers remain vulnerable to the price of oil.
Moreover, because of the war, US military spending will increase, while revenues will decline due to slowing growth in an economy facing recession. The US budget deficit could exceed six per cent of GDP, and public debt could rise to nearly $40 trillion, or roughly 125 per cent of GDP.
Meanwhile, the European and Asian economies will suffer more due to declines in the amounts of oil and gas exported to them. They are more vulnerable to fluctuations in energy prices and disruptions in supply than the US. The impact on inflation will depend on three factors: the speed of the price increases; the extent of those increases; and the length of time they remain high. A decline in energy supply would also reduce growth rates.
China will feel the crunch as it imports more than 70 per cent of the oil it consumes. However, it has reserves that will buffer it to some extent, and it will likely increase its energy imports from Russia. India will probably do the same, as it has turned to Russian energy before in such circumstances.
Globally, inflation is estimated to rise by 0.5 per cent for every 10 per cent increase in the price of oil. This will be accompanied by slower growth and higher unemployment.
The situation throws into relief the influence of the economies of the Arab Gulf states. Those who have argued that the harm done to these economies will not have a significant impact worldwide, as they account for no more than two per cent of global GDP, have been proven wrong.
The turmoil in economies and markets around the world following the Iranian strikes on the Gulf countries shows how inadequate such assessments are. The true reach of the Gulf’s economic influence cannot be reduced to a percentage of this sort.
The Gulf economy has become more diversified and more integrated into global trade, investment, and finance, as has been evidenced by the rapidly developing data centres and digital infrastructure that are being built there.
The Gulf states have become key players in transportation, logistics, travel, and tourism, and they are major labour destinations. In addition to being vital sources of energy (oil and gas), they are important producers of industrial inputs such as aluminium, steel, and petrochemicals, as well as agricultural inputs such as fertilisers.
Much of the global trade in gold and silver passes through the Gulf.
It is shameful that at critical moments that demand solidarity among the Arab countries that are being harmed by war, we hear arguments citing such opportunistic slogans as “one person’s misfortunes are another’s gains.”
This attitude is blind – perhaps deliberately so – to the fact that we are one people. Either we will be saved from harm together, or we will suffer together.
This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 12 March, 2026 edition of Al-Ahram Weekly
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