War: brace for rising prices, uncertainty

2026-03-02 - 23:14

The world – already beset by political instability and economic uncertainty – looks set to fall further into the abyss. I’m wondering if the latest war in the Middle East – which already involves nine nations and threatens to drag in more – is a “black swan” event. A “black swan” event is extremely negative, has a significant impact on society and is rare. While a war is not rare, one that involves many countries and is long-drawn, may fit the bill. Could it send the world economy reeling into recession and further unravel global institutions such as the rather enervated United Nations? Could it exacerbate geopolitical fragmentation? The latest conflict compounds the uncertainty and economic troubles caused by US President Donald Trump’s tariffs – the original tariff threats, the to-and-fro on precise amounts, the US supreme court’s dismissal of the tariffs as illegal and his adamant move to impose 15% global tariffs using a different law. Over the last few years, trust in global institutions such as the UN, has eroded. In the case of the UN, many feel disappointed that it is unable to prevent conflicts or end them swiftly if they do start. And we have seen the rise of a multipolar world, with new political and economic alignments, and regional defence and economic partnerships. If the latest war is swift and conclusive, the reverberations can be contained. If it is prolonged, then a recession is not unlikely. Also, we can expect greater geopolitical fragmentation and a loss of trust in more institutions and even economic tools. That is why there is need for a speedy end to the hostilities between Iran and the US-Israel partnership. In calling for an immediate ceasefire in the war that has flared following the joint US-Israel attack on Iran, Prime Minister Anwar Ibrahim rightly warned that the conflict was dragging West Asia to the “brink of catastrophe”. “Any provocative actions will only trigger a larger crisis, undermine regional stability, and risk drawing more countries into a conflict that would be difficult to contain,” Anwar said on March 1, soon after Iran carried out airstrikes across the Middle East in retaliation for the Feb 28 US-Israeli attacks. Reason dictates that the best solution is to return to the negotiation table but I’m afraid it may not happen – at least not so soon. The death and destruction that takes place in conflicts is horrid. Take the Russia-Ukraine war which entered its fifth year on Feb 24: It is estimated that Russian military casualties so far stand at around 1.2 million and that Ukrainian losses are between 500,000 and 600,000. In addition, the United Nations has verified 15,172 civilian deaths and 41,378 injuries since February 2022. And let us not forget that about 5.9 million Ukrainians remain refugees abroad, and 3.7 million are internally displaced. That war was expected to be over very fast when Russia invaded Ukraine. It didn’t happen. It’s been dragging on for so long that most of the rest of the world does not seem interested in it anymore. I fear this latest conflict too could turn out to be long drawn-out. I say this because recent wars in the Middle East – such as those in Iraq and Syria – have tended to go on and on. If that happens, it will cause more distress to an already politically unstable world and further corrode the economies of all nations. The net result will be higher costs of living and more suffering for ordinary people everywhere. I fear that if China and Russia, who have close ties with Iran, get involved, the conflagration will swallow more nations, possibly even resulting in a third world war. That would be horrendous. According to Chinese state media, Beijing’s top diplomat Wang Yi told Russian counterpart Sergei Lavrov in a phone call that the “blatant killing of a sovereign leader (Iran’s supreme leader Ayatollah Ali Khamenei) and the incitement of regime change” by the US and Israel was “unacceptable”. Russia has a vested interest in countering US influence in the region but has been drained militarily and economically by the war with Ukraine. China – still militarily and economically strong – has substantial economic interests in Iran, especially in energy. In fact, Russia, China, and Iran only last month conducted a joint exercise called “Maritime Security Belt 2026” in the Strait of Hormuz. Even if these two powers get involved indirectly – by supplying arms, equipment or intelligence to Iran – it could spell prolonged instability and economic woe. The conflict is already spreading because Iran not only attacked Israel but also fired missiles and conducted airstrikes across the region – including on Bahrain, Saudi Arabia, Qatar, the United Arab Emirates, Oman and Iraq – targeting US airbases and assets. We don’t know if these nations will retaliate. They have every right to do so if attacked. The Gulf Cooperation Council (GCC) – which consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates – has strongly condemned Iran’s military action against its member states, saying this reflects Iran’s hostile intent towards both the GCC and the wider region. If the war goes on for months and sucks in more nations, it will have a calamitous impact on everyone in a globalised, connected world. Malaysians should therefore brace themselves for tougher times. Expect a rise in the cost of living, especially if there is a prolonged war. Remember, the Russia-Ukraine war drove energy costs up globally, contributing to inflation across various economies, including Malaysia. It led to heightened food insecurity and soaring food prices in numerous regions. We are still feeling the effects of supply chain disruptions, which intensified logistics costs, altered trade routes and increased costs for manufacturers and consumers. Our own experience shows that the prices of food and other items, which rose after the Russia-Ukraine war began, never came down. Be prepared for a worse scenario. The war could cause a major oil supply disruption, sending fuel prices soaring, by making the Strait of Hormuz unsafe for commercial traffic. According to reports, more than 14 million barrels per day – about a third of the world’s total seaborne crude exports – flowed through the strait last year. Although the expected rise in global oil prices would mean increased revenue for Petronas, as Malaysia is a producer and exporter of oil, the government’s oil subsidy bill would rise. Supply chain disruptions would almost certainly lead to increased freight rates – as it did after the Russia-Ukraine war erupted – impacting trade volumes and profitability for importers. Exporters too will face higher logistics costs, eating into revenue. The resultant rise in prices of goods and services will likely cause inflation. This in turn could influence monetary policies, prompting Bank Negara to review interest rates. And that could impact investment flow, local businesses and those needing to borrow money. Economic growth could slow due to higher costs and the political and economic uncertainties birthed by the war. An increased cost of living will cause pain, particularly to the low-income group, and possibly result in public dissatisfaction. I’m glad that investment, trade and industry minister Johari Ghani sounded the alarm on March 1 about a disruption to Malaysia’s trade flows following the attack on Iran and the subsequent fighting. It shows he is very much on the ball. This means we can expect the government to be proactive in dealing with the fallout. In the meantime, we can only pray that reason will prevail and that the war will end swiftly. We can only pray that the war will not drag the world down into a self-destructive spiral of attacks and counter-attacks. We can only pray that this war will not hurl us into an economic abyss. The views expressed are those of the writer and do not necessarily reflect those of FMT.