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What War With Iran Would Mean for the US Economy?

8 min read

Iran and The United States have been at loggerheads since the 1979 Revolution that toppled the Shah of Iran. The countries have had their ups and downs in the past coming to the brink of war on many occasions. Most recently, America targeted and killed the Commander of the Islamic Revolutionary Guard Corps (IRGC), once again leading the world to believe that the start of World War III was inevitable. 

Fortunately, it didn’t come to that but instances like these make one wonder; what war with Iran means for the US economy? What repercussions would both countries face, how the surrounding regions and other nations may be impacted and will there be any benefits to one of the two countries. Today, we analyze some facts and take a look at what would happen if there were to be a war between the world’s biggest superpower and a small Middle Eastern nation.  

How a War With Iran May Start

There have been numerous cases in history when Iran and the US have almost declared war on each other. Fortunately, things have simmered before they got out of control. These examples though, have given us the answer to the question of how a war with Iran may start? Well, we know that the takeover of a US embassy in Iran failed to light the fuse. We also know that the killing of General Qassim Soleimani triggered a retaliation from Iran but the aftermath wasn’t as expected. 

So, how will it happen? Experts have differing opinions on the subject. After the killing of Soleimani, there were many options on the table. All eyes were set on how Iran would retaliate because the nation promised that it would. The response, however, was not as severe as many had expected. Iran fired more than 25 rockets at US military bases in Iraq but not before it had sent out a word of warning to the Iraqi government. Subsequently, there were no casualties, only several injuries reported. 

What was more surprising was that the US chose not to counter these attacks with a strike of a magnitude that most experts had predicted. As a result, a full-blown war didn’t materialize which if it did, would have been “hell on earth” according to an article published in Vox. Still, security experts and former diplomats are of the opinion that both US and Iran are not willing to engage in armed conflict. The times have modernized and so have the tools for war. 

One of the ways that was under debate between various circles involved hacks or cybercrimes. It was thought that Iran would launch an attack against digital assets that the US has. The attack could also be targeted at Israel which is a close ally of the United States and Iran is among the countries to openly oppose the existence of this state. Another way in which war could be initiated between US and Iran is by leveraging economic assets. 

After the Second World War, the US and the Soviet Union were involved in a ‘cold war’ and this has always been touted as the new form of warfare. Fighting for political, economic and social influence in a region is the way wars are now being fought and analysts believe this is what USA and Iran would be vying for. The real fightback from Iran, therefore, is expected to come, not through armed confrontation but in terms of trying to harm the US economy. 

What the US-Iran War Might Look Like 

The threat of an all-out war may have subsided for now but the situation between the two countries remains critical. US and Iran have come close to armed conflict several times like in 1979 when American Embassy staff was taken hostage in Iran or more recently when the Middle Eastern nation shot down a US drone in June 2019. 

In light of these events, many people have speculated what a war between the two countries would look like. Most experts believe that it is hard to predict how the fight would truly unfold other than it would be a series of attacks and counterattacks. At the end of the day, the outcome of a war depends on several factors and not just the size of the armies and firepower that each country has. 

If you are interested in finding out how US and Iran stand against one another in terms of military capabilities, there is a great comparison on YouTube by the ‘Infographics Show’ that pits both nations side by side. Obviously, Iran is considerably under-equipped when it comes to personnel, artillery, tanks and fighter jets but these things alone don’t decide which way a conflict will go. 

Nevertheless, a war between Iran and the US would not be a sole affair of the two states. It would quickly spill out to other countries ending in wide-spread destruction and loss of lives. This is why war as an outcome has always been less likely. The conflicts that are going to arise in the future will be economic and a more pertinent question today is to ask what war with Iran means for the US economy?

Effects on US Economy

So far, we’ve been taking two scenarios side by side. The US and Iran don’t seem to be heading for an armed conflict but still, we will take a look at what armed conflict would do to the US economy. Then, we will analyze the impacts of other forms of attack that Iran may be contemplating, how the US would retaliate and what would be the economic aftermath. 

The Effects of Armed Conflict on US Economy

After the US had killed General Qassim Soleimani in an airstrike, market experts across the country had speculated what would happen to the economy in case hostilities erupted on both sides. Jason Tuvey, a Senior Emerging Markets Economist for Capital Economics wrote a note that highlighted his predictions about the turmoil;

“Our central scenario is that the global economy will bottom out in the early part of this year and recover thereafter, but the outbreak of war between the U.S. and Iran would put the recovery on ice.” 

A war between Iran and the US could cause a collapse in the already fragile Iranian economy, knocking 0.3% off the global GDP. This would be equivalent to what the market had estimated damages to be because of the US-China trade war. Although the chances of war are slim, 20% at best according to many experts, there is a persistent threat of things going sideways. 

One thing is clear, both Iran and the United States are not ready for an all-out war. With Iran’s already troubled economy and the US Presidential elections in November 2020, both nations are not in a position to afford going to war. However, this is not going to stop either country from waging a war on other fronts like economic, geographic or political. 

The Impact of Proxy or Cold War on the US Economy

When the US-Iran conflict was at its peak, many people had predicted that the US economy won’t take a sufficient hit. One of the biggest factors in this assumption was the fact that over the years the US has become a major energy producer itself, decreasing its dependency on oil. This, however, doesn’t hold true because oil still plays an extensive role in not just the US economy but also in the global landscape. 

Iran geographically sits at a point in the Middle East where it can block transit through the Strait of Hormuz, one of the busiest trade routes in the world, especially for oil. According to estimates from JP Morgan, a short one-month blockade of this route can raise oil prices by up to $80 a barrel. If the blockade was to continue for six months, prices could jump by 126% or more than $150 a barrel. This can have a significant impact with some experts even predicting a global recession as a result of this. 

The Aftermath of The War

War always comes with heavy consequences for all parties concerned. In this case, a conflict between the US and Iran would quickly spill out and get other countries involved. The result is going to be an unavoidable World War III. However, as we’ve pointed out several times, no country, including the US and Iran are ready for an all-out armed conflict. If a war does break out though, the aftermath will be devastating both in terms of loss of lives, property and economic damage as well. 

The conflict though is far from over. We will continue to witness the repercussions of actions from both sides. It has become evident that Iranian missiles are becoming more accurate at striking long-range targets and the downing of a passenger airliner shed light on things that might happen as a result of a war. For now, the world has been gripped by the coronavirus fears and incidentally, one of the countries most affected is Iran. What the future holds is yet to be seen but it is quite evident that there isn’t going to be a let-up in confrontation any time soon. 

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Written by Spencer K.

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