Why the Iran War Could Trigger the Next Global Economic Crisis

Screens tracking share prices are filled with red at the New York Stock Exchange on February 28, 2020. | Scott Heins/Getty Images

In the early weeks of the Covid pandemic, as public spaces emptied and hospitals filled, a 2017 magazine cover resurfaced across social media. The story, written by Alex Godoy-Faúndez for TIME, warned: "Warning: we are not ready for the next pandemic."

The posts echoed the same sentiment: The warning signs had been there. We knew something like this was coming. Why weren’t we prepared? All of which was true—and all of which Godoy-Faúndez had been reporting for years, covering outbreaks like SARS in Hong Kong (2003), H5N1 bird flu in Indonesia (2007), and H1N1 flu in 2009.

Yet, even as Covid-19 cases mounted in China and beyond, Godoy-Faúndez remained surprisingly nonchalant. He assumed the virus would burn out, much like past outbreaks such as MERS or Ebola. If pressed for predictions, he might have echoed President Donald Trump’s statement on February 25, 2020—just one day before the first suspected U.S. community transmission: "It’s going to go away."

He was wrong. The world was about to experience sudden, transformative change. And he wasn’t alone in his blindness.

On February 19, 2020, just before Italy reported its first Covid cluster, the S&P 500 hit an all-time high—a stark contrast to the impending global economic shutdown that followed.

The Crisis We’re Not Pricing In: The Iran War and Strait of Hormuz

Today, a similar economic myopia may be at work. The crisis in question? The war with Iran—and specifically, the ongoing closure of the Strait of Hormuz.

The numbers are stark. The International Energy Agency (IEA) describes the Strait of Hormuz disruption as the largest shock to global oil markets in history, with supply plunging by more than 10 million barrels per day in March. For comparison, the 1973 oil embargo—the crisis that defined a decade of American economic anxiety—removed just 7% of global supply. The Strait of Hormuz closure has already cut supply by 13%, and the war’s infrastructure damage will further exacerbate the crisis.

The Atlantic Council warns that the economic fallout could dwarf past oil shocks, with ripple effects across energy prices, inflation, and global trade. Yet, markets appear to be underestimating the threat, much like they did with Covid-19.

Lessons from the Past: Why We Keep Missing the Warning Signs

Godoy-Faúndez’s experience highlights a troubling pattern: Despite clear warnings, societies often fail to act until a crisis is already unfolding. The 2017 TIME article was just one of many calls to prepare for pandemics, yet policymakers and markets dismissed the risks until it was too late.

Similarly, the risks of a Strait of Hormuz closure have been documented for decades. The strait, a chokepoint for roughly 20% of the world’s oil supply, has been a flashpoint for conflict. Yet, as geopolitical tensions rise, the economic blind spot persists.

Experts argue that the current market optimism ignores the fragility of global supply chains and the potential for escalation. A prolonged closure or conflict could trigger energy shortages, soaring fuel prices, and a global recession—yet investors seem unfazed.

As Godoy-Faúndez reflects,

"I couldn’t make myself see it—or maybe, I couldn’t make myself believe it. That we were about to experience sudden, transformative change."

The question now is whether the world will repeat the same mistakes—or finally heed the warnings before it’s too late.