If tomorrow Iran, the United States and Israel were to announce a peace deal and the Strait of Hormuz were to reopen, the war would not be over.
Wars do not end when the missiles stop flying. They end when the structural damage they inflict on the global trading system finishes working its way through prices, contracts, balance sheets and political legitimacy.
By that measure, the impact of the 1990 Gulf War, for example, lasted decades. Iraqi crude oil production did not recover to pre-war levels until a decade after the conflict while the Iraqi state continued to pay the United Nations-mandated $52.4bn in compensation to Kuwait until 2022.
Similarly, the Ukraine war shock may have been at its most palpable in 2022, but it is still affecting economies across the world and will do so even after it ends.
The Iran war has only just begun to deliver its costs – costs that will be paid, as always, by nations that had no role in starting the conflict. Its global impact will come in four waves.
The first wave is the one everyone sees. Crude moves, liquefied natural gas (LNG) follows, freight rates spike and the financial press writes about energy inflation as though it were the main disruption.
It is not. It is the entry point.
Energy is an input into nearly every tradeable good, and the pass-through follows a predictable sequence. Natural gas, for example, accounts for 70 to 80 percent of the variable cost of ammonia production for producers globally. As a result, within months of a sustained gas shock, fertiliser prices follow.
The present case compounds the pressure in two ways simultaneously: The disruption removes not only LNG from the global market but also fertiliser produced in the Gulf, a region that accounts for about 30 percent of global ammonia exports and 35 percent of global urea exports, the bulk of which are routed through the Strait of Hormuz.
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