Iran - the short, medium and long-term impact
Peter McGahan
Monday 16th March, 2026.
MOST wars hit economies through something far more boring than the dramatic headlines: plumbing. A pipe, a price, and a pause. If the pipe stays open, the shock is usually a wobble. If the pipe is squeezed, prices jump. If it stays squeezed, everyone pauses - spending, hiring, investing - because uncertainty is a cost in its own right.
The International Monetary Fund (IMF) puts the sensible framework on it: what matters is duration, physical damage, and whether higher energy costs persist long enough to change inflation and central bank decisions.
So, let’s cut through the noise and look at the short, medium and long versions of this story - and who tends to feel it most.
If the war is over quickly for whatever reason the impact is much less and no deep rooted.
A short war, (think less than a month), is usually just a volatility shock. Oil can spike on fear, markets can drop on nerves, and travel will take an immediate hit as people cancel flights and hotel bookings, but they will surge back when they get a moment, often spiking that demand. If shipping lanes normalise and infrastructure damage is limited, the inflation pulse tends to be temporary. Central banks often try to “look through” a one-off energy jump, because raising rates into a brief shock can make things worse, not better.
Who feels a short war most? Consumers and businesses close to the edge. Households see petrol and utility anxiety return. Airlines, tourism and energy-intensive firms feel the pinch first. Meanwhile, energy producers and defence-linked sectors can look like “winners” in market terms - but that is not the same thing as the economy being healthier.
Medium war - weeks to a few months - the plumbing becomes the story. The Strait of Hormuz is a genuine choke point for oil and liquefied natural gas, and the research notes the market’s “economic core” here is energy and shipping: disruption risk, rerouting, and rising war-risk insurance premiums. Even when goods can be rerouted, costs rise, and delivery times lengthen (demand). That seeps into prices well beyond fuel: freight, fertiliser inputs, air cargo and more.
If energy stays higher for long enough, inflation can become stickier and rate cuts can be delayed. The research shows persistence is what changes central bank reaction - and therefore mortgage rates, business borrowing and investor sentiment.
Who is most exposed in a medium war? Europe and the United Kingdom tend to be more sensitive because imported energy costs feed through quickly into households and business margins. Emerging market economies can be the real pressure point: a stronger US dollar plus a higher energy import bill is historically a nasty combination for countries running fragile current accounts or large amounts of US dollar debt. Middle Eastern economies can also take a hit even if they are energy exporters, because tourism appetite and aviation routes suffer.
The long war - three months plus, or an on-off conflict which becomes a feature of life. Companies build higher transport and insurance costs into their decisions. Supply chains get redesigned. Investment slows because the future looks foggier. The IMF’s warning path here is the classic stagflation geometry: slower growth alongside higher headline inflation.
A second danger: something breaks in the credit system. If the cost shock keeps inflation higher for longer, and rates stay higher for longer, heavily indebted firms and countries can run out of breathing space.
In the short term, the US dollar often rises because it remains the world’s main safe-haven liquidity, not because it is a good investment per se.
Now for the behavioural trap to be wary of, because this is where most personal damage happens. In a crisis, doomscrolling feels like action, but it is usually just anxiety with a Wi-Fi connection. The smarter move is to focus on what you can control.
If your household budget is tight, assume energy bills and travel costs can stay jumpy and build a buffer where you can. Do you have a balanced diversified and advised portfolio? If you are an investor, remember markets can fall as well as rise, and the biggest mistake is often panic selling after the fall has already happened. If you are running a business, watch your real exposures - freight, fuel, insurance, and interest costs - rather than reacting to every headline.
Wars create noise. Your job is to keep your financial plumbing steady while the world’s plumbing is under strain.
If you have a question regarding your investments, please email info@wwfp.net or call 01872 222422.
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser firm, Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
