The Iran war is raising the risk of a permanent inflation floor, potentially ending the era of cheap money and reshaping returns across global financial markets.
Energy market disruptions linked to the conflict have exposed structural fragility, increasing the likelihood of sustained oil price shocks and higher long-term inflation.
This shift could limit central banks’ ability to cut interest rates and inject liquidity, reducing upside across assets including stocks, bonds and cryptocurrencies.
“Once that mindset takes hold, global energy markets will never return to the old model of open, price-driven, largely commercial trade,”
Said energy market expert Anas Alhajji.
The evolving focus on energy security is expected to drive de-globalisation, with countries prioritising control and self-reliance over cost efficiency, leading to structurally higher expenses and slower innovation.
The disruption in the Strait of Hormuz has already triggered supply constraints affecting industries from fertilisers and food production to semiconductor manufacturing, adding to inflationary pressures.
Historically low inflation between 2008 and 2021 enabled ultra-loose monetary policy and strong asset performance, but a higher inflation floor could constrain future rate cuts and liquidity support.
As a result, investors may face a prolonged period of elevated volatility and capped returns, as central banks operate with less flexibility in an environment of persistent inflation.