On the coming economic crisis

2026-05-06

The ongoing conflict in the Middle East has created an input shock whose delayed cascading effects we shall experience in the months and years to come. Shortages in oil and its derivatives bring about challenging states of affairs that extend to every area of economic activity. If businesses start failing, we may be in for a rerun of the post-2008 financial crisis or worse. Prices were already at exorbitant rates prior to the US-Israeli war against Iran. The upward trend is further reinforced as markets are gradually yet steadily pricing in the prevailing risks.

Even if the planet is awash with natural resources that can, in principle, render Middle Eastern oil surplus to requirements, the damage has already happened (and continues to worsen). It takes time to reorganise supply chains to whatever new normal. The transition cannot be pain-free.

President Trump keeps boasting about America’s prowess on the battlefield in what starts to look like theatrics for saving face rather than responsible statesmanship. America has not only failed in toppling the Iranian regime and in acquiring the enriched uranium, it has also managed to create an intractable situation with the closing of the Strait of Hormuz—a vital artery of the global energy markets which was, by the by, open prior to this unnecessary war. In the process, Trump appears beholden to his paymaster lobbyists and thus cannot be trusted to pursue policies that are in the well-meaning interest of his own people, let alone the international community.

In my part of the world, the European Union, political elites are behaving in the same way as their predecessors circa 2010. Then too, as today, woefully unprepared policy-makers were too slow to respond to rapidly evolving phenomena. Their complacency, continuous delays, indecision, and overall lack of ambition, deepened and lengthened the economic downturn. They effectively had no better solution than to condemn the continent to an economic outlook of permanent austerity on the fiscal front combined with hyperinflationary monetary policy.

The devastating outcome of their decision-making remains with us to this day. The money printing bonanza evolved into the ever egregious concentration of property in the upper parts of the income distribution. Same principle for the bailouts that favoured big business over everybody else.

EU apparatchiks are focused on their endless proxy war with Russia, which is a boon for the military-industrial-financial complex on every side of the conflict, but of negative value to affected countries at-large. Effective leadership in such circumstances would be concerned with creating the conditions for the economic resilience of Europe through what used to work well, namely, sincere trade. Diverse alliances and strong commercial ties with the rest of the world, couched in terms of mutual respect, are essential. Once greed becomes doctrine and guile turns into policy, war is inevitable.

Part of such a realignment involves closer ties with China, a recognition that the Middle East belongs to all of its peoples and that cooperation with them is the sole path to sustainability, a rapprochement with the Russians, pressure on the Ukrainian government to finally accept a peace deal, and gradual reduction in the currently strong dependency on American energy imports.

What we get instead is further dependence over the short-to-medium term on the increasingly unreliable Americans, mindless Sinophobia and Russophobia, jingoism in Eastern Europe, and neocolonial smugness towards the predominantly Islamic Western Asian countries.

Advances in robotics and artificial intelligence could, in theory, mitigate the chilling effects of the looming recession and even reverse the trend altogether. Though one need only consider the ownership model of the relevant industries to understand that whatever gains will not be widely shared. Those who brought us to this situation will be laughing all the way to the bank, while we will be counting pennies to buy a loaf of bread or, worse, paying with our blood in some war we never believed in.

There is still some time to arrest the downfall and pivot away from the path to collective folly. Though it requires a sense of urgency. I am afraid that at least in the Europe Union apparatus there is no such quality of character to be found. Not in Berlin, not in Paris, and certainly not in Brussels.