A wave of bewilderment has erupted in many economic circles worldwide because the economic effects of the war on Iran were not as massive as many had expected. In fact, the surprise that many are talking about is that the repercussions of the coronavirus pandemic on the global economy were much deeper than this war, and that the Russian invasion of Ukraine caused greater economic chaos than that resulting from the Iran war.

The British newspaper Financial Times devoted an extensive article by writer Alan Beattie, in which he tried to explain the reasons why the impact of the Iran war and the closure of the Strait of Hormuz was limited, and even less than the effects resulting from the 1973 war, the 2020 coronavirus pandemic, and the Russian war on Ukraine in 2022.

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Beattie says in the article, which Al Arabiya Business reviewed, that 'the short-term impact of the war was not disastrous, as a consensus is currently emerging that this shock will be much weaker than the combined effects of supply chain disruptions, fuel and food prices resulting from the Covid-19 pandemic and the Russian invasion of Ukraine in 2022.'

He adds: 'Perhaps the most interesting comparison is between the current Iran war and the 1970s era, which was characterized by high inflation rates and witnessed an oil shock in 1973. So far, the gloomy predictions that claimed these recent events represent a return to a state of persistent "stagflation," accompanied by rising prices and economic imbalances, have proven wrong.'

The writer says that when measuring based on inflation of import prices in emerging markets, which usually bear the brunt of global economic crises, we find that the price increase related to Iran was much lower than that caused by the Covid and Ukraine disruptions. It is also much weaker compared to what happened in 2016, when three factors coincided: Chinese credit incentives, a global commodity price boom, and a strong dollar.

Beattie points out that so far, the disruption of fertilizer supplies does not seem to have affected farming operations in Europe or North America, and the same is likely true for producers in the southern hemisphere such as Australia.

He adds: 'Commodity storage and fertilizer supply management mechanisms have proven flexible and effective enough to handle the situation. Although it is still too early to know whether the temporary shortage in fertilizer supplies - caused by the period of the Strait of Hormuz closure - will cause serious damage, export traffic has already resumed. And India, one of the world's largest importers of urea and fertilizers and heavily dependent on the Gulf region, appears to be doing fine.'

Beattie also notes that many believe central banks were far too slow in responding to inflationary pressures during 2022, which made that crisis deeper than the Iran war crisis.

Beattie says: 'There is no doubt that future shocks will inevitably occur, including the "El Niño" climate phenomenon expected to appear later this year. The Strait of Hormuz may also be in for further disruptions later on, but ultimately, the "stagflation" label is not determined based on energy price shocks or other price shocks, but depends on how policymakers, consumers, and companies respond to those shocks.'

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