The economic fallout from the conflict in the Middle East is dependent on several factors, the biggest being how long the violence lasts before some sort of resolution or endgame materialises.
Buoyed by the success of its operation to depose President Nicholas Maduro in Venezuela in January, US president Donald Trump may be hoping for a similarly swift operation to knock out the Tehran government.
Regime change via air strikes alone has never been achieved by western powers. The same regime is still in place in Venezuela, just with a different, albeit acting, president.
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Iran’s response also seems to have evolved significantly from the stance it took to the US-Israeli-led attacks last year.
For one, it has attempted to widen the conflict, drawing in multiple countries in the region presumably to maximise the political and economic fallout. Second, it appears to be retaliating in a more sporadic fashion, using lower-grade weapons.
This has led to speculation that it may be trying wear down the interceptor resources protecting US assets and allies in the region before striking with its bigger weaponry at a later point. Israel is referring to Iran’s counterattack as a “drizzle tactic”.
All of which suggests Tehran, in contrast to its de-escalatory stance last year, may be preparing for a longer engagement.
If this materialises, the economic impact will be similarly longer and more profound.
So far, we’ve had a spike in energy prices – oil and gas – and uncertainty over activity in the Strait of Hormuz, the narrow waterway at the mouth of the Gulf through which a fifth of the world’s oil and gas flows.
The longer this goes on, the more it will spill over into inflation here – running at 2.4 per cent – and elsewhere in Europe, adding to existing price pressures on households.
This could potentially prompt higher interest rates and weaker growth.
But that’s a simple narrative and there’s nothing simple about the current situation.
Operation Epic Fury, the US name for the attack, might well be named epic gamble. The stakes are huge and the outcome is far from clear.