Faisal Islam: What people in power think the impact of the Iran war will be

The market is likely underpricing the lag structure more than the headline event. Even if shipping normalizes quickly, the real inflation impulse arrives with a delay through inventory depletion, fertilizer availability, and working-capital strain for importers; that means the first-order move in crude can fade while second-order pressure on food, freight, and EM external balances persists for 1-2 quarters. The most exposed losers are low-storage, import-dependent economies and sectors with price-setting lags: airlines, packaged foods, chemicals, and frontier sovereign debt.

The bigger macro risk is policy mistake, not commodity scarcity. If central banks misread a supply shock as demand-driven inflation, they could tighten into weakening growth, especially in Europe and the UK where the transmission from energy to mortgage and wage expectations is fastest. That creates a regime where equities can rally on de-escalation news but credit and rates remain fragile because growth expectations were already downgraded during the shock window.

For banks and markets tied to UK rates, the signal is more nuanced: lower energy is disinflationary, but a sharp global risk-off can widen funding spreads and hurt loan demand before policy relief shows up. In EM, countries with thin reserves and large food/energy import bills face the most asymmetric stress over the next 60-90 days; those with FX buffers and domestic energy bases should outperform. The contrarian miss is that if the Strait stays open, the most persistent trade may shift away from oil beta and into beneficiaries of lower rates and lower input costs rather than outright crude shorts.