At the beginning of this year, the world economy seemed to develop in a promising direction, according to some analysists. The IMF revised its forecast from October 2025 upwards and cited a “resilient growth”. The latest developments linked to the wars in the Middle East prove that optimism to be more a dream than based on solid ground. Just days after the start of the US-Israeli bombardment on Iran in a war that involves more than 10 countries, IMF head, Kristalina Georgieva, warned, “This conflict, if proven to be more prolonged, has obvious potential to affect global energy prices, market sentiment, growth and inflation…”
The truth is that the world economy has been stumbling from one crisis into the next for quite some time now. But given the deep and overall crisis of capitalism, its defenders and representatives are clinging to every straw and overstate each little flickering hope, as the light of the end of the tunnel. The consequences of the war in the Middle East on the world economy are highly dependent on the consequences of military events (such as attacks on oil facilities in the region and closing of oil shipping routes) as well as the length of the conflict. The Trump administration is still promising a short war, but the White House might be pushed further than originally planned by the actions of the Israeli government and the dynamic of the conflict they kicked off. And even if this war should soon be over the underlying weaknesses of world capitalism remains and with this increased competition, tensions, conflicts, and wars.
Oil, Trade, Inflation
If you drive a car that needs petrol or need petrol for cooking, running generators, as for example in Nigeria, a visit to the garage with available affordable fuel turns out to be luxury. Within hours after the start of the war, the prices for petrol increased and will once again have to be paid by ordinary consumers. In Europe, the prices for gas increased by 70% within days. Leave aside the fact that companies aim to quickly make extra money, the effects of the rise in energy prices will be huge. Half of the world’s oil reserves are in the Middle East. They are now under threat because of the effects on production and even more on trading oil. Around a quarter of the world’s oil trade normally goes through the street of Hormuz which is blocked now. Hundreds of oil tankers with millions of barrels of crude oil are stuck. Most of this oil normally goes to Asia. Europe is more affected by the problems in gas supply and for the US it will not be a problem of supply but of price. But Asia could be affected more directly and harder. Asia, at the same time, is still the most dynamic part of a low growing world economy. The Asian stock markets reacted immediately to the war with a major drop. They might have re-stabilised and dropped and gone up again, but the possibility of a further, longer, and harder collapse is very real.
The US-administration of Trump is not only that of a lunatic egomaniac: the MAGA-idea also includes the economic concepts of protectionism, of re- and near-shoring, of decoupling, of autarky. In the light of recent events, it becomes clear that Trump’s attack on Venezuela to get control of the country’s oil and to try to impose a more complaint regime seems to have been at least partly in preparation for the attack on Iran.
Venezuela’s oil exports nearly doubled between the end of 2025 and the beginning of 2026 after Maduro was kidnapped by the US. And the exports shifted from China, the main buyer, to the USA, regaining its position as the main consumer of oil from Venezuela. So, in January the USA received 300,000 barrels per day, around the amount that China bought before, which is now only getting around half of that.
The US is aware of the economic dangers for Asia and has therefore been giving special permission to India to use Russian oil. While just some months ago Trump punished India with extra tariffs for the same, he is now giving a 30 days’ time window. This must be understood in the attempt to make India an even stronger ally of the US in the region, especially against China.
Trump, different from former US-presidents, is more honest about his agenda, which represents the economic interests of a part of the US-capital. In other wars we were – falsely – told they would be about human rights, about women’s rights, about democracy etc. Trump is blunter in his attempt to make “deals.”
China has in the last decades developed into the most dynamic and competitive part of the world economy. It is a major rival for the interests of US-capital in all parts of the world, increasingly at Trump’s doorsteps, in Latin America. China has also increased its military spending for over 7% per year for several years and makes clear, “As China continues to play an increasingly important role on the global stage, its military has taken on greater responsibility in providing the international community with more public security goods.”
A direct attack on China is – militarily, politically, and economically – is too dangerous for the US. But after Venezuela, the attack on Iran is the attempt to pull another country out of China’s sphere of influence. The Israeli and the US-government might have some different interests regarding Iran but for the moment they fit together and lead to this attack. For the US it is much more than just “oil;” the attacks have elements of a proxy war against China. For political reasons, the US might be interested in weakening China, but economically this could turn out to be a disaster.
While the process of de-coupling has been spreading up since the Covid crisis, the world economy is still highly interconnected. Still three of the four countries producing most of the world’s semiconductors are in Asia. Although Trump’s tariff-war with China has reduced imports from China a great deal and exports to China by less, both are still enormous (106,000 million exports in 2025 and 308,000 million imports) leaving China as the 3rd biggest trading partner of the US.
China is still the second biggest creditor for the US, so a serious downturn of the Chinese economy will have serious negative effects for the US, as well (should China start to sell off US bonds, for example). So, the idea to harm the Chinese economy for US benefit might turn out to be a bit too simple. No region will stay unaffected by downturns in other regions because the connections of trade, of supply-chains, of credits, FDY and much more, stay strong. Asia is the most dynamic part of the world economy now, so a downturn there would have even more effects for the rest of the world economy.
Moreover, a longer hike of energy prices could unleash the nightmare of inflation that was just apparently squeezed into the bottle. While inflation is not the result of decent wage deals but due to speculation and profits, working class people will have to pay the price for a hike in inflation again. This will affect workers in the developed capitalist countries, including in the US and Europe but even more in the developing and neo-colonial countries. The increasing energy prices, the rising costs in transportation and – e.g. in fertilisers – which will lead to higher prices in basic goods, as well as the fact that money will flow from the weaker to the stronger (and therefore safer) economies. This will have dramatic effects on the poor masses in Africa, Asia, and Latin America.
The war on top of an already unstable balancing act
The world economy was in an unstable situation already before the war started. It went from crises to crises for decades. It has never really recovered from the deep crisis of 2007/08. Since then, the global debt (which was at dangerous record levels back then), the debt of states, and on the stock markets, have further increased to over 300% of global GDP (compared to over 200% in 2007). The covid crises followed by the crisis in supply chains further increased the debts and led to record inflation, with the “crisis of living costs.”
The number of zombie companies that just survive but are economically dead are estimated to be around 10% in advanced capitalist countries and even more in weaker economies – and the number of zombie firms are growing by a rate of up to 10% per year. After the 2007 crises, there were many promises made to reduce the risk of financial bubbles. But today we have new bubbles, and new promising markets. After crypto currencies, the new salvation is hoped to be found in AI. AI companies are highly rated and rich but are bubbles, as 95% of companies investing in this field have not made any financial gains yet. The risk in the financial markets is enormous although it has been shifted from traditional banks to non-bank financial institutions (NBFIs).
All of this is not just the result of a “bad” economic policy but of a decrepit economic system. Post WW2 capitalism had its seemingly golden age of growth in the 1950s and 1960s when the devastation of the second world war had to be dealt with, and at least in the advanced capitalist countries the system needed to present itself as a provider of social welfare given the existence of an alternative system, the Soviet Union and other Stalinist states (although run in a top down, bureaucratic fashion, the planned economies saw major rises in living standards for a period). But since the end of the 1960s, the capitalist economy has been on a clear downward trend, thought allowed short periods of respite such as with the collapse of Stalinism opening a huge area of cheap labour, cheap resources and consumers for profit making. But in general, the economic booms became weaker and shorter and the crises more often and deeper.
The recent attack on Iran follows political the specific interests of Netanyahu and Trump but will have deep political and economic effects on the region and if it continues the world.
Multi-Polarisation will deepen
The lack of oil and gas can lead to Russia filling the space. The example of India already shows others might follow. The government of Erdogan in Türkiye is frightened that the rise in energy prices could kill the country’s soft economic recovery and again increase inflation. Now Türkiye tries to present itself as a mediator but might be pushed further towards Russia and China. Sections of the populist and far right in Europe openly uses the energy question for their support of the Russian regime. And hand in hand with the “liberal” bourgeois parties, they turn to increasingly hysterical propaganda against refugees and immigrants and talk about how to erect a wall against a new “wave” of refugees fleeing the wars inflicted by imperialism.
Europe, for some time, has been in a poor economic situation with hardly any growth and increasingly left behind. The EU’s very fragile recovery could end before it really started. The EU is in a crisis for some time; its political crisis is a result of its economic crisis. The latter is rooted in the fact that the EU cannot overcome the different national interests of each respective capital – and can do so all the less while the economic crisis hits. With the EU increasingly left behind, different international strategies by its member states are demanded and pushed for. British capital tried to go its own way with Brexit but quickly found out that this is also no solution to the general crisis of capitalism. Germany, which has a leading economic position tries some sort of “independent” position, leaning more towards the US but also flirting economically with China and pushing for European militarisation, including an EU-army. Weaker economies like Hungary and others, especially in eastern Europe, tend in some cases to tilt towards China. All this will not only increase the tensions within the EU but might also lead to a hectic and desperate policy, jumping from one side and partner to another in the hope of finding some space between the increasingly dominant USA and China powers.
The frantic search by countries for oil and gas globally that the Iran war has caused, can give the Russian regime time to sell and profit, and have extra resources for Ukraine war. That might, in turn, increase the costs for the western governments backing of Ukraine’s war, and add further to their state debts, and pressure from their respective working classes. The already prohibitive costs of military spending will increase further. That will increase debts and with this interest rates, which could lead to a further drop in the already low rate of investment, further slowing down the economic “growth.” All together a lose-lose situation!
How deep the effects on the world economy will be depends on the length of the current war and its repercussions. If the Iran war goes on for longer, the price for oil could go up to 120 or even 150 dollars per barrel (close to the highest ever) – some analysts even worry about a price of up to 200. Especially in the neo-colonial countries, the burden of rising prices might lead to a (further) turn towards China and Russia and could further deepen the global political tensions. An even higher oil price in the case of a long war could lead to stagflation, of inflation and weak growth or stagnation. So, the economic crisis will further deepen the already existing political crisis, and this can see governments resorting to ever more dictatorial measures and repression.
Unsolvable – political and economically – under capitalism
The war is more than an attempt to divert attention from Trump’s low approval figures and due to the Epstein files scandal, and it is more than mere election thunder for Trump and Netanyahu who both face elections this year. It follows the idea of an US economy dominating the world while being somehow independent from it. Both are not possible. It reflects the weakness of capitalism and its desperate search for a way out of this protracted crisis of the economy. Despite all its brutality and violence, the war conducted by US imperialism is also a reflection of the weakness not only of the economy but also of its political representatives.
Yet the hope for peace is a central wish of ordinary people around the world. The fear of war is amongst the highest worries of young people, leading to ‘doomerism’ and depression. It is increasingly obvious that the international institutions – from the UN and the EU to the Vatican – cannot solve the situation. Even if they speak clearly out against the war, this is ignored at best. Increasing tensions and the threat and actual happening of wars is the natural result of capitalism being in a long-protracted crisis. War is part of an inseparable from capitalism. As there cannot be capitalism without economic crises there cannot be a peaceful capitalism. That is the reason socialists always combine the fight against militarisation and war with the fight against social cuts and against capitalism.
And yes, at first sight the situation looks bad, with right wingers winning elections, with crisis and war. But looking deeper the situation is much more positive. The support for this rotten system is falling everywhere and even if people, often out of a lack of alternative, vote for right wing candidates or parties this represents the wish (misguided as it is) for something completely new. The last period saw an increase in protests and struggles, and an endless flow of especially young people standing up for their rights like in the Gen-Z protests in 2025, in Sri Lanka, Myanmar, in Belarus, during the BLM protests, and protests for women’s rights from the USA to Latin America and Iran. We see international solidarity with the people in Palestine and the Kurdish-inhabited area. We see workers coming back on the stage, with a wave of organising themselves and using the powerful weapon of strike. All this shows the potential not only to stand up against the wars but also to once and for ever overthrow the source of war: capitalism.