How the Iran War Is Reordering Global Capital

How the Iran War Is Reordering Global Capital

Is the emerging markets trade over?

$62.3 billion

YouTube’s revenue last year, making it the world’s largest media company.

1. How the Iran War is reordering the global economy

2. Newsletter Exclusive: Semiconductors have a dirty secret — and it’s creating an investment opportunity

The Iran War Is Reshaping Global Capital Flows

The war with Iran has changed the global landscape in a very short time — and it appears there’s no end in sight. On Friday, when asked when the conflict would be over, President Trump said, “When I feel it — feel it in my bones.” On Saturday, Trump told NBC that the U.S. may bomb targets on Kharg Island, the site of Iran’s main oil export facility, “just for fun”, after U.S. warplanes targeted military installations there on Friday.

The war has already created the largest supply disruption in the history of the global oil market, and capital flows are starting to reorganize around this new reality.

For the U.S. and other oil‑exporting countries, the 47% surge in energy prices means higher export income and higher corporate profits for oil companies.

• If prices stay close to $100/barrel, U.S. oil companies could register an increase of more than $80 billion in free cash flow this year.

The benefits are harder to see for taxpayers, who are paying more at the pump and footing the bill for the war. The first 12 days of the war have cost U.S. taxpayers more than $16 billion.

The conflict’s externalities are being felt most acutely abroad. In the Middle East, more than 3 million people have been displaced, and more than 2,100 have been killed.

The war is also rippling through the global economy. Europe and Asia are especially vulnerable because they rely on imported energy.

European markets have already lost more than $1 trillion in value, reversing what had looked like the region’s first real recovery in years. The EU’s economy chief warned that if energy prices stay elevated, economic growth this year could slow to 1.0%, down from the 1.4% forecast last year, and inflation could surpass 3%.

Asia is even more vulnerable, with about 80% of all crude oil transiting the Strait of Hormuz destined for the region. Governments are taking extreme measures to conserve energy:

• Thailand’s prime minister urged bureaucrats to take the stairs instead of the elevator.

• Bangladesh has closed universities and urged citizens to turn off their lights.

• Vietnam is asking citizens to work from home and limit car usage.

• Restaurants in India are shutting down for lack of cooking gas.

Just a year ago, global capital was flooding into emerging markets. Now, the war has made many of those investments look too risky. The MSCI Emerging Markets Index has lost over $1 trillion in market cap, while the dollar climbed to a three-month high last week — an early sign that investors are moving back toward the relative safety and liquidity of U.S. markets.

In the U.S., we don’t realize a lot of our success is unearned. We have two oceans protecting us, friendly neighbors on both borders, and we’re one of the most resource-rich nations on Earth. We produce more energy and food than we consume. The U.S. just doesn’t go out of business. Before we make a single decision, the deck is already stacked in our favor.

But those unearned advantages go only so far. We’ve assumed that controlling a third of global GDP means controlling the world. But our dominance wasn’t about size, it was about cooperation. We built the operating system on which 60% to 70% of global GDP runs, and that system works because nations chose to participate in it. That choice was never unconditional.

Our markets will be fine because capital flows are amoral. Money goes wherever it can get the greatest return, and as long as the U.S. remains the center of gravity for entrepreneurship, whether that’s AI, biotech, or space, the capital will keep coming.

The real long-term threat is talent. Young people are more moral than capital. The best and the brightest will start choosing London, Singapore, or Tokyo over the U.S. not because the opportunities aren’t here, but because their values no longer align with ours. That could have huge long-term impacts on our country.