Steve Keen argues that the Iran conflict could trigger a severe oil shock, driving war-led inflation, supply shortages, and stagflation, especially in Europe. He also says the bigger underlying risk is still excessive private debt, which makes the economy fragile even if the immediate crisis is geopolitical.
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This interview centers on two overlapping risks: the Middle East oil shock and the fragility created by private debt. The host opens by framing the moment as one of "war inflation" and private debt stress, citing oil above $100 and write-downs in private credit. Steve Keen says the phrase should really be "warflation" or even "wearflation," because the shock comes from attacking a major oil producer. He argues that a large disruption to Iranian oil flows could cut off roughly a third of world oil supply, with Europe and countries like Australia being especially vulnerable due to weak reserves and dependence on imported oil. He says higher oil prices will feed through the entire production system, causing not just inflation but supply shortages and a hit to working-class consumers who rely on cars. Keen rejects the mainstream view that inflation is mainly driven by money supply growth. …
Immediate setup is bearish for growth and bullish for inflation-sensitive volatility: if oil keeps rising, consumer stress and supply-chain pressure should intensify quickly. The key tactical risk is an abrupt reassessment of rate expectations if the Fed prioritizes growth over inflation.
Over the next few weeks or months, the likely path is stagflationary unless the oil shock reverses. The setup improves only if energy supply stabilizes and debt-service stress stays contained; otherwise, higher prices and softer real activity should coexist.
Structurally, the interview argues that the global economy remains vulnerable because leverage is still too high and mainstream policy models misread the banking system. That means future shocks are likely to express themselves first through debt, credit, and asset prices rather than through simple demand-led cycles.
The current shock should be understood as warflation caused by conflict involving a major oil producer.
Keen says the term should be warflation because the shock comes from attacking a major oil producer.
A serious attack on Iranian oil infrastructure could remove around one-third of global oil supply.
He says attacks on oil, desalination, and related facilities could cut a large portion of world supply.
Oil prices could move toward about $150 per barrel if the disruption persists.
He says prices are already rising and would likely double or triple by the time stability returns.
What does war inflation mean and how will it impact portfolios and the global economy?
Professor Keen reinterprets it as 'wearflation' — the US is bombing a major oil producer, which cuts off global oil supply. He argues there's no substitute for oil in production, so this will cause both inflation and supply shortages, not just price increases. Working-class Americans will be hit hardest as gas prices rise without wage increases.
How do you see the inflation scenario playing out — can you put numbers on it?
Keen says it's too early to make calculations since we don't know the scale of oil cut-off. He expects oil prices to double or triple, hitting $150/barrel. This will particularly hurt working-class Americans who voted for Trump, as gas costs rise without wage adjustments, redistributing income away from them.
Does consumer pain at the gas pump affect war planning at all?
Keen compares the coming supply shortage to COVID-era supply chain disruptions. Oil is the most fundamental commodity in production — virtually every production process uses oil or is priced relative to it. Costs will increase for producers, and the question is whether they absorb that in margins or pass it to consumers.
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