Iran War May Ignite Domestic Tinderboxes

Image courtesy of FreePik

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

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

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

Even for developed countries, food security and runaway debt levels will hinder each government’s ability to maintain any semblance of law & order as the war progresses and devolves into a nasty quagmire that will deepen an already fractious socio-economic-political landscape.

“Something’s Gotta Give”

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

·       Military Invasion Forces. Any invasion force with the intention of remaining for any length of time is a high-risk and expensive endeavor. Already Israel has pushed into southern Lebanon for the purposes of creating a 30-mile buffer zone. The 31st US Marine Expeditionary Force, specializing in amphibious assaults, and other American ground troops are pre-positioning for an incursion into Iranian territory in the very near future.

·       Commodity shipments on hold. Oil, natural gas, food and other essential commodities maritime shipments are stalled, a de facto blockade by Iran, in the Strait of Hormuz.

·       Historic world debt. One unsettling component is the private capital market. Though the sector is opaque with respect to information, anecdotal stories point to nervous investors withdrawing their funds. It is estimated that the private equity market holds $768 billion in stressed debt, leveraged loans and direct lending markets - defined as imminent defaults, bankruptcy and debt restructuring.

FOOD SECURITY

Natural gas is critical in the production of fertilizer. Timing is everything for northern hemisphere countries for spring planting. Less fertilizer will mean far less yield and inevitably higher selling price for such foodstuffs.

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

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

The most recent widespread and prolonged civil unrest was the Arab Spring 2010-2012 encompassing many Middle Eastern and North African countries. Under the current crisis scenario, this violent conflagration will occur in far more countries notably Southeast Asia whose foodstuffs come through the Strait of Hormuz.

Even those countries that are highly food self-sufficient will not have enough fertilizer this spring to produce robust yields even with the most favorable weather as well as petroleum products to power their farm machinery, now at elevated prices. The same applies to spare parts.

To avoid internal destabilization and protect their citizenry, many countries are imposing food export restrictions including China. Furthermore, China, as the second largest exporter of fertilizer after Russia, is applying export controls.

Food, like most commodities, are priced in US dollars. Most developing countries struggle to maintain enough foreign reserves (USD dollars) for commodity purchases. A spike in energy prices makes government unable to secure food and natural gas for fertilizer production for spring planting.

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

This crisis deeply hurts family-run outfits who encounter the vicious cycle of skyrocketing commodity prices. They lose business thus less revenue for essentials thus cutting back on operations to save fuel. Many family businesses are idle or near that point.

Domestically in the US, this same scenario is more plausible that one can imagine and not just among the poor and lower middle class. For months, the middle class has found itself struggling financially with high inflation, job losses or stuck wages requiring a household to have two jobs to pay for the basics.

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

ENERGY SHORTAGE

Maritime Hostages in the Strait of Hormuz and Oman

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

Port of Bab el-Mandeb

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

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

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

The following chart entitled Oil Supply Chokepoints provided by the US Energy Information Agency (EIA) and published by Visual Capitalist:

DEBT: THE RED ECONOMIC MENACE

Alarming debt levels

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

Nonetheless, the leadership is willing to pay the short and long-term price because the alternative is an avoidable humanitarian crisis and violent unrest that could oust them from power. Kicking the can down the road is their best option.

The following chart entitled Global Government Debt Hits $111 Trillion provided by the International Monetary Fund (IMF) in 2025 and published by Visual Capitalist.

The debt breakdown by country is articulated in the following chart entitled Global Map of Government Debt in 2025 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 and essential materials through war zones to storage facilities and distribution networks.

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

This trend disproportionately hurts the lower socio-economic demographic. Many of those in that already financially stressed group are automatically “disqualified” through biased algorithms for even short-term credit for legitimate purchases.

For the general public, it is not inconceivable before Memorial Day, if the Iran War intensifies that rationing may be imposed on fuel similar to what happened after the Yom Kippur War in October 1973. Fueling at gas stations (gallon limitation) was permitted depending on the day and odd/even last number of license plates.

AI Devoured by the Black Widow

Ironically, with respect to electricity, the AI industry may be placed on pause by municipalities because of their dominant use of electricity for their operations. Already AI has eliminated hundreds of thousands of jobs.

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

Potential Dystopian Scenarios:

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

·       Social instability and civil unrest everywhere, especially in sanctuary cities where it’s not uncommon for criminals spend overnight in jail for violent crimes. Shift to survival even in developed countries amongst highly educated citizens.

·       Exploding crime rates for the purpose of survival by once law-abiding, financially table households such as robberies and looting.

·       Massive rallies against President Trump to stop the war, “war crime” accusations because of humanitarian suffering globally.

·       For this reason, the GOP may be crushed in November midterms by blaming Trump, not because of his military foray into Iran, rather the economic consequences of Iran’s retaliation by closing the Strait of Hormuz.

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

Conclusion & Takeaways

With the equally obstinate and determined President Trump and Iranian leadership engaged in a Mexican standoff, there will be more serious economic fallouts that will impact the ordinary citizen globally. Economic fallouts always result in civil unrest and probably political upheaval in some regions. The issue is its intensity and duration.

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Indo-Brazilian Associates LLC is a NYC-based think-tank that provides prescient, beyond-the-horizon, contrarian perspectives and risk assessments on geopolitical dynamics and global urban security.