To shield ordinary Indians from the war in Iran, the government in Delhi redirected supplies of liquefied gas to Indian families, for which it is the main cooking fuel, limiting supplies to the plastics industry. The Nepalese government rationed gas and the Philippines trimmed the government workweek to four days. Bangladesh closed universities and rationed fuel.
They have been hardest hit by Iran’s closure of the strait of Hormuz. Economies in Asia import over a third of the energy they consume, on average. Korea imports four-fifths; Japan nine-tenths; Thailand 55%. Most of this comes from the Gulf. About 80% of oil and oil products transiting through the strait in 2025 was destined for Asia, according to the International Energy Agency. But traffic through its waters has collapsed by 90%.
Europe is less reliant on fuel from the Middle East. But it is intensely dependent on imported oil and, critically, natural gas, whose price has surged since US and Israeli bombardments began in Iran. This is reflected in equity markets. By 20 March the MSCI index of European stocks had fallen about 11% since the start of the war, more than the 9% fall of the MSCI Asia index.
So far, the advanced economy that has shown most resilience as war in the Middle East wreaks havoc in energy markets is that of the United States. The S&P 500 index has lost a relatively modest 5% since the beginning of Trump’s war. And that reveals a lot about where we are going.
The data speaks to the relative resilience of the US economy and, especially, its abundance of domestic natural gas, which satisfies about 36% of its energy needs and insulates it to a significant degree from the vagaries of international prices.
But it adds an uncomfortable chapter to the main narrative of the world economy. It is a story in which the United States – once a guardian of a rules-based global order – dons the role of its nemesis, recklessly spreading havoc among friends and foes while suffering relatively little harm of its own.
The barrage of tariffs Trump launched in April last year – the first volley of the new American campaign against the world – will cost the United States. Economists outside Trump’s orbit have concluded that US consumers and businesses are paying the overwhelming majority of the tariffs. But the economic harm is spreading far and wide, as many countries have seen their exports to the United States fall.
According to the International Monetary Fund’s latest revisions to its growth forecasts, the US economy has emerged largely unscathed. In January, before the US started bombing Iran, the IMF forecast that American GDP would grow 2.4% this year, almost 0.4 percentage points more than it forecast in October of 2024. By contrast, according to the IMF, prospects for economic growth this year in Britain, Japan, Canada, India, the euro area and Latin America all weakened since Trump took office.
More pain is on the way. The World Trade Organization (WTO) is the latest multinational organization to assess the damage inflicted by the war started by the United States and Israel. If energy prices remain persistently high, it forecast, merchandise trade growth this year will slow from 1.9% to 1.5%. North American export growth will slow a bit, from an expansion of 1.4% to 1.1%. Europe will be clobbered, with exports shrinking by 0.6% rather than growing by 0.5%.
The hit to growth will be equally lopsided: while costly energy would boost GDP growth in North America this year to 2.5%, according to the WTO, from a baseline of 2.3%, it would slow GDP growth in Asia to 3.1% from 3.9%. In Europe, pricey energy would bring the economy almost to a halt, slowing its expansion to 0.4% from a prior estimate of 1.6%.
And economic growth is not the only measure of the mess sparked by the bombing on Tehran. About 70% of Brazil’s and 40% of India’s urea imports, essential to their agriculture sector, come from the Gulf through the strait of Hormuz. Gulf nations import most of their food: 75% of their rice comes through the strait, as well as more than 90% of their corn, soybeans and vegetable oil.
On top of all this, countries like Bangladesh, India and Pakistan will be hit by the inevitable drop in remittances from millions of their citizens working in Gulf countries as the war takes a toll on the regional economy.
The disruption of the oil and gas economy isn’t even good for the climate. Environmental warriors may bet it will encourage the world to embrace renewable sources of energy. But the first order impact in Asia, at least, has been to reinvigorate interest in coal.
How much should this change our view of the world? Erstwhile US allies in the liberal west have been forced to accept that Trump’s America is no longer a reliable partner in the service of international stability, but perhaps the main source of global uncertainty.
They are becoming aware that Trump will offer up any number of hogwash excuses to justify his belligerence. He justified bombing Iran by arguing that it presents an imminent nuclear threat just after he claimed he had obliterated its nuclear program last year. He wants to raise a new tariff wall after the supreme court struck down his earlier efforts using some spurious argument about forced labor.
Who knows what justification he will make up next, for instance when he remembers he also wants to take over Greenland and the Panama canal.
It is foolhardy to believe that this episode of wanton aggression is a freak occurrence, that US belligerence will end after the 2028 election, or maybe earlier if Democrats manage to take over Congress in November. Tens of millions of Americans in the Maga base are motivated by contempt for the rest of the world, which they perceive as treacherous and abusive and, well, “other”.
This political force will not soon go away. Alongside China taking Taiwan and Russia wanting the Baltics, “the US pulls an argument out of a hat to raise random hell” must be added to the world’s risk premium.
