The U.S. started the war against Iran. The rest of the world is suffering the consequences
The fallout from two months of war in Iran is shuttering textile mills in India and Bangladesh, grounding airplanes in Ireland, Poland and Germany, and prompting energy rationing in Vietnam, South Korea and Thailand. The only country, it seems, that has been relatively spared from the economic chaos is the one that started the war: the United States.
While warning signs of a recession are flashing across countries in Asia and Europe, the United States is likely to outperform most of the world’s advanced economies. Growth is steady and unemployment low. “It’s still hard to bet against the U.S. economy,” the Royal Bank of Canada said last week.
The United Arab Emirates, one of the world’s richest countries, with sovereign wealth funds that total more than $2 trillion, has asked the United States for a financial lifeline in the wake of missile-damaged gas fields and a halt to shipping in the Strait of Hormuz.
In just eight weeks — less time than it takes to age a traditional English fruitcake — the global economic outlook has been knocked sideways.
The worst economic pain will be felt in poor countries, where consumers cannot afford higher energy prices, and governments cannot afford to provide aid to offset the costs. And as financing tightens, the cost of desperately needed borrowing for these countries increases.
Soaring prices now for fuel and fertilizer mean higher prices for food later in the year. In Africa, “food insecurity looms large,” the International Monetary Fund said last week. In the Asia-Pacific region, millions of people are at risk of falling into poverty because of the conflict, the United Nations Development Program warned.
Already, many countries in Asia are grappling with fuel shortages, which will grow only worse as the war drags on, said Raghuram Rajan, an economist at the University of Chicago and a former governor of the Bank of India.
“The shortages will start hitting more and more,” said Mr. Rajan, who formerly served in a top role at the International Monetary Fund. In many countries, the real consequences are only just beginning to be felt. [Continue reading…]