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Monday, March 02, 2026

2: Iran

War, Oil and the World Economy Are we less vulnerable to an oil price shock than we were in 1979? ........... I remember how soaring energy prices were followed by soaring inflation across the board. .......... Now Donald Trump has taken us to war with the nation that was at the epicenter of that crisis. Obligatory disclaimer: The Iranian regime is evil, and it would be a good thing if this war leads to its demise. But my topic today is the side consequences of the US attack. ..............

Almost everyone assumes that the economic fallout from Operation Masculine Insecurity Epic Fury will be much less severe than the fallout from the rise of the mullahs nearly fifty years ago.

............ why did world oil prices rise 165 percent after the Iranian Revolution? Fears of disruption in other Middle Eastern nations led to speculative hoarding, followed by Saudi production cuts that kept prices high. ................ Shipments of oil through the Strait of Hormuz, which is how most Middle Eastern oil reaches world markets, appear to have come to a more or less complete halt. ................ Middle Eastern oil remains crucial for the world economy as a whole. ........... As of this morning, oil prices were about $10 a barrel higher than they were in mid-February. That will add approximately 25 cents to the price of a gallon of gasoline. So far markets are in effect betting on a short, not-too-disruptive war, although that could change. ............... The “oil intensity of GDP” is the ratio of oil consumption (measured in terawatt-hours of energy) to real GDP, measured in 2017 dollars. This indicator has declined more than 70 percent since the 1970s, which basically tells us that today’s economy uses much less oil to produce a given amount of output than the economy of the 1970s. One way to see this is to compare growth in US real GDP to the change in US oil consumption since 1978: ................. The U.S. economy has tripled in size, but oil consumption now is about the same as it was in the late 1970s. .............. the gas mileage of the average car has roughly doubled. Also, cheap natural gas has replaced oil in many uses, for example in home heating, and renewable energy is also starting to make a dent. ................ Dubai in particular is an important node in the global financial system, as well as playing host to many extremely rich people who thought they had found a safe haven. One indicator of that changing status is the transformation of Dubai International Airport into one of the world’s most important travel hubs.

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