Mehrdad Vahabi: The Current Middle East Crisis Is More Devastating Than All the Oil Shocks in History
Vahabi argues the Hormuz crisis exceeds past oil shocks and may bring inflation, stagnation, and social breakdown in Iran.
Mehrdad Vahabi, professor of economics at Sorbonne Paris Nord University, discusses in this interview the escalating tensions between Iran and the United States and their devastating consequences for the international economy. Comparing the current crisis in the Strait of Hormuz with the oil shocks of the 1970s, he warns that the removal of 11 million barrels of oil a day from the market has dealt a heavier blow to the global economy than the major oil shocks of the past. In this interview, Vahabi also dissects the critical condition of Iran’s infrastructure, speaks of the possibility of a “social explosion” if postwar reparations are not provided, and sheds light on the role of factional interests in perpetuating the conflict.
Reports indicate that the U.S. military is examining a range of military options against Iran, including securing the Strait of Hormuz, which could involve the deployment of American forces along Iran’s coast. Reuters has also reported that Donald Trump’s administration is considering the option of sending ground forces to Kharg Island, the main hub of Iran’s oil exports.
Alongside these military moves, Washington has also tried to keep a diplomatic path open. According to reports, a proposed 15-point package has been presented to Tehran through regional mediators, including provisions such as ending hostilities, fully reopening the Strait of Hormuz, reducing or lifting sanctions in exchange for nuclear and missile restrictions, and halting support for proxy forces. Some sources have also spoken of a possible one-month temporary ceasefire to create conditions for negotiations.
Even so, the atmosphere of distrust between the two sides remains intact. Iranian officials have told mediators in countries such as Pakistan, Egypt, and Turkey that past experience has shown that even as negotiations advance, military attacks continue at the same time — a reality that has deepened doubts about Washington’s true intentions.
With all these developments and speculations, how are we to imagine the end of this war? Even now, if we look at indicators in the stock market, energy, and precious metals, we can see how disorderly the situation has become and how sharply prices are rising. The economy and economic security are under strain, and there is no sign of stability. How extensive will the economic consequences of the war be, and for how long will their effects be felt globally? Can one hope that after the war the global economy will return, within a short period, to its prewar condition — or at least to something close to it? Or should we expect a turbulent and unstable global economy for the foreseeable future?
In this context, we spoke with Mehrdad Vahabi, professor of economics at Sorbonne Paris Nord University, about the economic consequences of this war. Referring to the two major oil shocks of 1973 and 1979, he says that each of those crises, by removing around five million barrels of oil a day from the global market, led to stagflation.
According to Vahabi, the current situation has gone even further than those crises, because the disruption in the Strait of Hormuz has reduced global oil supply by around 10 to 12 percent. The gas market has also been severely disrupted: Israel attacked Iran’s South Pars gas field and the Asaluyeh processing hub, while the Islamic Republic of Iran struck Qatar’s Ras Laffan LNG complex. He emphasizes that this could lead to a combination of inflation and recession in the global economy.
Vahabi says:
“Today, given the deadlock in the Strait of Hormuz, roughly eleven million barrels of oil a day have effectively been removed from the market. Nearly 20 percent of the world’s oil is exported through this strait, and the current reduction is equivalent to 10 to 12 percent of global daily oil supply, which has naturally led to a surge in prices. Of course, with the circulation of messages about the possibility of negotiations and bringing the war to an end, prices moderated somewhat. But that moderation is temporary. The effect this event has had on the global economy has therefore been heavier than the combined effect of the two oil shocks of 1973 and 1979. In addition, unlike the oil shocks of 1973 and 1979, gas supplies have also been disrupted: Israeli strikes hit Iran’s South Pars gas field and the Asaluyeh processing hub, while Iranian attacks damaged Qatar’s LNG infrastructure. As a result, the world is under pressure not only in terms of oil but also in terms of gas.”
Pointing to conditions in European countries, economies such as Germany and Italy, which were already facing recession, will face the danger of worsening stagflation if the war continues. Vehabi also warns about the growing budget deficit in France.
He then turns to the consequences of this war for the U.S. economy, saying that rising military expenditures and a growing budget deficit, together with the falling value of the dollar and the rising price of gold, are all signs of the economic pressure generated by the war. According to him, the politicization of global trade and rising tariffs have also intensified economic instability.
He also considers Israel’s role in driving up military costs across the region significant, emphasizing that the expansion of militarism has affected not only Israel’s own economy but the entire Middle East.
According to this professor of economics, even if the war ends in the short term, the world will still face significant inflation, and in some regions stagflation, and a rapid return to prewar conditions appears unlikely.
As Vahabi argues:
“Today, trade in the United States has become a political factor. Sanctions and increases in customs tariffs have taken on a major role, and U.S. interventions at the global level must be understood in that framework. This politicization of trade relations caused countries in commonwealth-type unions, including Britain and Canada, to bear greater costs, the value of the dollar to decline, the price of gold to rise, and the United States to face inflation and the possibility of economic recession. This should not be separated from the role of Israel either. One of the factors that has received less attention, and which is mentioned in the OECD’s 2025 report, is the increase in military expenditures resulting from the spread of militarism in Israel. Despite repeated financial assistance from the United States, military spending accounts for less than forty percent of Israel’s budget, yet this same militarism has affected around forty percent of that country’s economy. This percentage does not concern Israel alone; the entire Middle East is affected by the burden of militarism. Therefore, even if the war ends within the coming three weeks, the world will still face inflation, and in some regions stagflation at the very least.”
In another part of the interview, Vahabi addresses Iran’s economy and stresses that even before the war, the country was already facing crises such as resource shortages, high inflation, and structural instability. According to him, the continuation of the war — or even its end without a reconstruction plan — could intensify both economic and social crises.
As Vahabi contends:
“In my view, Iran has already paid several billions of dollars, and one might even say that hundreds of billions have been spent. It is necessary to estimate the damage, because oil infrastructure in many parts of the south of the country and on Kharg Island has been attacked. Many provinces and urban and residential areas have been damaged, and both military and civilian infrastructure have been targeted. Their reconstruction must be assessed on the basis of the scale of the destruction.”
Mehrdad Vahabi also told Zamaneh:
“One thing is certain: the Iran that, by Dey 1404 (December 22, 2025–January 20, 2026), was already facing serious problems because of territorial fragmentation, structural economic crisis, shortages of water and electricity, widespread uncertainty, and the disarray of the capitalist class, will now confront an intensification of those very same problems under these conditions. Essential needs and food items are facing extremely high inflation, well above sixty percent. Therefore, even if the war stops, Iran will still face enormous economic pressure — not only reconstruction costs, but also the immediate economic pressures that existed before the war and have now reached their peak. To these we must add environmental factors as well; for example, air pollution in Iran, which has worsened as a result of Israeli attacks destroying infrastructure centers, or problems related to water desalination and water shortages. These issues will place a heavy burden on Iran’s future generations.”
He warns that without financial aid or reparations for reconstruction, Iran’s economy may face “total paralysis” — a condition that could lead to rising poverty, social instability, and even large-scale humanitarian crises.
Vahabi says:
“In my view, if no coordination takes place for the payment of war reparations to Iran — whether with the help of the Gulf states and Saudi Arabia, or through a period of lending by Western countries for reconstruction — Iran’s economy will undoubtedly be paralyzed, and social explosions will become unavoidable. This means poverty, misery, and famine in the country — a situation that for now has been contained by the continuation of war policy, but one that has enormous dimensions in everyday economic life. Without reparations and the resources needed for reconstruction, Iran will face social explosion, famine, severe poverty, and the paralysis of the government. That is the point I wanted to emphasize.”
Mehrdad Vahabi: The Current Middle East Crisis Is More Devastating Than All the Oil Shocks in History #MittlererOsten #Ölkrise
