The War May Pause — The Economic Shock Won't | Prof G Markets

President Trump's threat against Iran ended with a two-week ceasefire, but the economic consequences are just beginning. Iran now charges $2 million per ship passing through the Strait of Hormuz and has declared full sovereignty over the waterway. Mark Zandi argues this follows Trump's pattern: threaten escalation, wait for markets to react, then pivot and declare victory. This time, however, the pivot comes with permanent costs.

Oil prices peaked near $110 per barrel during the crisis and have now fallen to $95 with the ceasefire. But Zandi expects them to settle around $80—well above the pre-crisis $60. Insurance companies will demand higher premiums for ships transiting the strait, traders will require risk premiums, and Iran's new toll adds direct costs. These aren't temporary shocks; they're structural changes that will persist «in the foreseeable future, this year, next year, the year after.»

For the U.S. economy, this means sustained inflationary pressure on top of existing tariff impacts. Gas prices, which were just under $3 per gallon before the crisis, will likely settle between $3.75 and $3.90. Diesel prices—critical for trucking groceries and goods—have risen even more sharply. The economy can absorb these shocks without tipping into recession, Zandi argues, but growth will be «much diminished.»

Beyond immediate inflation and growth impacts, Zandi warns of «corrosive» long-term consequences from Trump's nuclear threats and the broader retreat from global leadership. The U.S. is rapidly pulling away from the rest of the world through tariffs, immigration restrictions, and unpredictable geopolitics—and the world is pulling away in return. When a president raises «the spectre of military action and even implicitly makes reference to potential use of nuclear weapons,» it creates lasting anxiety about American stability and reliability.

This deglobalization isn't a «cliff event» but a gradual erosion. The rest of the world is actively seeking alternative partners for trade and investment. The U.S. has benefited enormously from the dollar's central role in global commerce and from being the default destination for international capital. That privileged position is now under pressure. The immediate manifestation is higher interest rates—investors demand more compensation for perceived risk. But the longer-term effects include slower growth, reduced innovation from cross-border collaboration, and diminished American influence in setting global economic rules.