The West’s Iran crisis: Global recession & Russian revenue

Welcome back to the Econoclast, in the week when Donald Trump asked NATO allies to help him opening up the street of Humus by sending their own ships.

Hello Janus, how are you and what are you going to talk about?

Hello Volkheim, today I'm going to take on the faith that most people simply have, that like the tariffs last year in 2025,

the shock this time from the closure of the street of Humus will have merely benign temporary effects.

I'm going to argue that that's not the case. They will be neither benign nor temporary.

Even if Donald Trump falls his tent and chickens out tomorrow morning, and what are you going to talk about Volkheim?

Well I'm going to debunk the idea that the Iran war has tilted the balance of power in the Russia Ukraine war in Russia's favor.

I will argue that it was already tilted before.

Okay folks, so I'll kickstart this with my thesis on why, unlike last year, when the tariffs were in the end, did prove to have a temporary effect.

As the Econoclast had predicted, Volkheim, UNI were saying that last year, this time it is going to be quite different.

The closure of the states of Humus from where I'm standing will have effects that will build up and do increasing levels of damage even if Trump falls his tent and chickens out this afternoon.

We all know that by shutting down the states of Humus Iran has succeeded in removing around one-fifth of oil output from the international markets about 20 million barrels daily.

Now the tariffs also cost market panic, remember with Liberation Day, there was speculation about the recession, the stock exchange is crashed, but these fears, in the end, proved unfounded.

Why am I saying that the new fears from the Iran war, the American war and the Israeli war against Iran, why these fears will be founded?

There are four reasons, I think Volkheim. The first one is that demand, back then, in 2025, demand was elastic enough for much of the burden not to fall on American consumers, but to be shifted on to importance.

The second reason was that the AI investment spree of the last 12, 16 months has been a kind of wave that has crashed into the wave of the tariffs of the pessimism that came from the tariffs, canceling it out.

The third is that the tariffs actually worked to the extent that they crowded into the United States, substantial capital flows and not only into AI.

We've seen a lot of investment coming from Japan, from Germany.

And the fourth is that during the last year, central banks loosened monetary policy, interest rates were being reduced.

But this year, with the closures of the states of Hormuz, we have a different kettle of fish. Firstly, central banks seem to be prone to delaying further reductions in interest rates, in response to the increasing yields of 10-year bonds, American bonds, European bonds, UK bonds.

Well, anticipating higher inflation. Secondly, unlike last year, we are now in a situation, during 2026, when for reasons we don't entirely understand, an employment has been rising both in the United Kingdom and, of course, in the United States.

And the direction of change, even if that unemployment, the actual number of freshly unemployed workers is not that great.

The direction of change does matter. At the time of tightening monetary policy, and, as I said, independently of the actual absolute magnitude of the increase in unemployment.

Thirdly, the artificial investments, free of last year, was aided and abetted by the fact that electricity prices were not increasing anymore.

If anything, they were falling. Now that they're increasing, then, you know, the net present value of investments in artificial intelligence of falling.

And that may stall or cause the investments free to stall. Fourth, Trump has already said that he may postpone the April meeting with President Xi of China.

Now, the purpose of that April meeting, with the President of China, was to extend the tariff truce, a truce that played such a significant role in ameliorating the tariffs' ill effects across not just the Western economies, but more generally.

Now, to conclude, before I'm passing the button on to you, Volkan, it seems to me that Trump's utterly stupid and, let's not forget, illegal war against Iran, even if it stops immediately, even if Trump decides to do that with Roman emperors used to do when things were not looking very good in the periphery of the Roman Empire, when they were being picked by barbarians, by gods, by whoever.

And that is declared victory and hold the triumph in Rome. Even if he does that, he declares victory and pulls back his Air Force, his Navy, and so on.

Even then, the secondary and tertiary effects of the closure of the states of Hormuz, the fact that the Iranian government regime called it what you may, seems unwilling to end the war.

Yes, there is some kind of, if not reparations, but some closure that allows the regime to feel safe again.

You know, these secondary and tertiary effects of the closure of the state of Hormuz will paint Trump's presidency and drive lots and lots of people in the United States, in Europe, and in the global South, countries like Bangladesh, for instance, below the poverty line.

In the end, and I think that is also a segue to what you want to say, Wolfgang, in the end, only China and Russia stand to gain from this.

Yes, I think that is broadly, you know, a good summary. I'm not even as optimistic as you are on, you know, the scenario that he might end it tomorrow.

I wrote about these scenarios in my latest column in Unheard, and indeed this is a scenario that he might just declare victory and leave.

But I think this will be very difficult for him because it will be, it will be seen or would be seen in the United States as the, you know, the big, the most monumental misjudgment of our age.

So a more plausible scenario is that he, that he continues to fight for a longer period of time until he can make some plausible claim, not a reality in something that you and I would agree with, but that he could make a plausible claim to his own people.

He has got the job done now. There's no limit to the amount of delusion, you know, and a politician can, can subject himself to and Trump is particularly prone to this.

But he could maybe claim that, you know, the total destruction of the military infrastructure in Iran, the destruction of, you know, Iran's ports may have not only decapitated the regime, but it may have made it impossible even to launch the attacks that disturbed the straight.

Or maybe he can mobilize enough patrol boats and Navy vessels to protect, you know, all tankers, the amount to do it that way, you know, through protection of military vessels is hugely not only wasteful, but is hugely resource intensive.

And we required, he would require almost the entire resources of the US Navy and, you know, and obviously other countries would have to chip in.

Europeans are already saying, no, this is asymmetric warfare. It takes a single drone to blow up an oil tanker.

We may have to consider the possibility of a longer, of a longer war, and we may have to think about the Iranian reprisal scenarios.

They're not only shooting missiles or drones at vessels, they're also attacking oil infrastructure in the, in the Middle East.

Iran, your scenario, it worked to be, you know, there's going to be a peace deal today, and Trump would leave, and the street, the straight would be gradually reopened.

It would take at least a month until the shipping would return to normal, say Iran were to attack Saudi Arabian oil infrastructure.

Now, this infrastructure would have to be rebuilt. We would be in an altogether very different scenario.

This would take months and months. This would be a global recession. We're talking about, we're talking about significant falls in GDP growth in the countries affected.

And it would take a long time for the supplies to be recreated. And there are, it's not just oil and gas. There are chemicals that are made from oil and gas that are being, that are basically stopped now.

So these have knock-on effects on global supply chains. And we all remember from the pandemic, what it took supply chain crisis that was on nobody's radar screen at the time, how quickly it can impact the global economy.

This is why the, the initial estimates about, oh, this will be 0.1% growth effect or 0.2% growth effect. They're completely wrong because people have no idea how these, you know, how these supply chains, how these network effects work themselves through the system.

So I agree with your, with your analysis that this is under all scenarios. It will have a bad impact on the global economy. And then we have all the, the, the monetary policy, the European Central Bank is meeting this week. They may not this week, but they may prepare a rise in interest rates going forward, you know, interest rates on the long end already shooting up.

This is, these are real effects. These interest rates shifts affect the real economy already.

Yeah, look, I don't say with you at all that Trump is in a trap. A trap may be of the making of the thing, who maybe of his own team doesn't matter. In the end, he is in a bind. He can't come up with an additive, as you were saying, of a mission accomplished.

There's no way, as long as the states of her moves are shot, that he can do that. And the states of her moves will remain shot as long as the Iranian government wants them to be shot.

The point I was making and I think we agree on this is that even if there was a magic wand and we could wave it. And suddenly the war is over.

The secondary and tertiary effects of this closure of this disruption are going to be huge compared to the liberation day shenanigans of last year.

Textiles, genes, factories in Bangladesh have had to go slow to shut down for half the day because of lack of energy, because of the gas that they needed to be powered with electricity from Qatar.

And, you know, these are cumulative effects that, as you said, even if tomorrow morning we have an end to this war, they will take months, if not years, to unfold.

And, you know, you mentioned the interstates. I'm not sure that interstates will go up, but they don't even need to go up in order for monetary policy to be tightened.

If they don't go down as it was anticipated before this war further down, that's a kind of monetary tightening at the time of increasing unemployment in the Anglosphere, maybe in Europe as well.

And, and an AI industry, which is already worried about a bubble in its valuation, which is going to be hit by the, you know, the effects of the net present value of their stock coming down.

In inverse proportion to energy prices, to electricity prices, and we know how energy intensive these AI machines are.

So, yeah, but look, there's another issue that I'd like to bring up just briefly.

There's no doubt that I think that Trump was winning everything up until now, and now he's going to lose once and for all.

I think that politically Trump is in the synbin. I think he's lost as a result of this gross failure of judgment.

But then again, you know, the forces behind him, the vested interests that were egging him on, whether they were American or Israeli or a combination of the two, they are not that concerned.

Because you see, Wolfgang, I have this view. It's a view that I shared with my friend Julian Assange, who's been saying this about American wars in Afghanistan and Iraq many years ago.

That the underlying motive for the vested interests behind these wars, not the presidents, not their immediate advisors, but for the military industrial complex, now AI companies, big tech companies, cloud capital, as I call it.

There isn't why they were really very keen for the United States to wage these wars of choice.

It was never victory, and it was never stability, and it was never, it was endless war, an endless war designed to channel billions of dollars from public tax systems and fiscal systems into the hands of a transnational security and military elite, which is now utterly integrated between Israel and the United States.

If you look at Palantir, it's got a capitalization, half a trillion. If you look at Anduril, if you look at the various companies that are developing their AI, training their AI programs in the killing fields of Ukraine, in Gaza, now in Iran, what is happening is mana from heaven for them.

I'm also sure it's that conspiratorial. I think you may be overestimating them. There are certainly people in any administration that think on your lines.

The entire administration would an entire system try to play a game like that. I would doubt that very much. It's hard to analyze the world and policy as it is to understand what people really want is even harder.

Trump wants is very different what George W. Bush wanted, but the idea that they both wanted to shift money into the hands of the industrial military complex as something that they did on purpose, I think that it's unlikely given also that they had different objectives.

But Bush ended up doing this because he relied on people like like Jenny who actually did this. So yes, so the effect was indeed the case with Trump is more complicated. I think what happened here is that Trump got himself persuaded, whether by Netanyahu, whether by his own military, I don't know, but he was persuaded to enter into a war that he didn't understand of which he didn't have a goal, which he didn't know how to end.

I would push back against this a little bit, not because I don't think it is happening because I think you are right. It does. It is happening, but I would be more cautious about the motives.

Well, look, I have no idea. I can't even begin to imagine what led Trump to this mistake. And I have no conspiracy theory of it. But what I do know is that the entire administration of Donald Trump is totally sold to big tech and AI in particular. They understand.

They are totally connected. You can see that through Elon Musk initially Alexander Cobb and Peter Till Jeff Bezos. They are utterly at one with this notion that the future of American hegemony therefore the success of this administration depends on AI and big tech. That's their big thing. It's no longer industry. It's no longer diplomacy. It's not international law. It's AI.

And you know, Silicon Valley and Israel have become utterly intertwined over the last few years. And some just some very brief examples. I mean, the workforce theme that abducted Maduro.

You know, the war is really developed augmented reality visors in South Lebanon. You have tech systems that create 3D maps using lighter radars that enable AI algorithms to identify targets using Amazon, using Palantir, using, you know, various tech companies in Israel.

Palantir in Ukraine scans the battlefield through satellites, drones, thermal sensors. And you have programs like Lavender and Maven that are maximizing the efficiency of the, you know, these, these military operations in Gaza and Yemen now in Iran and of course in Ukraine.

So all I'm saying is that there is this very strong AI military complex now, which is represented at every level of government in JD Vance and so on.

So in other words, whatever led Trump to this silly decision must have had a great deal of support from this network of highly motivated and highly connected people all around him.

I agree with this, but the only point I'm trying to make this was never different in Europe either except that this, you know, we're talking about 21st century technology as opposed to 20th century technology.

The relationship in Europe between governments and industry was very strong. Industry also, you know, we also had military industries, steel industries, kind industries on which on whose behalf European government acted very strongly.

The United States has moved on. It has basically moved on from 20th century industries to 21st century industries, the ones that we don't have in Europe. So yeah, it's AI, it's cryptocurrencies, and they're different industrial barons. They're no longer, you know, the old industry barons, but these are new tech entrepreneurs that that seem quite frightening to us and they do things that we disagree with, but ultimately the principle is the same.

Yes, you heard the economic class talk about the ill effects, the economic macroeconomic ill effects of this war, which we claim are going to be very long term and quite malignant.

Now we're going to move on to another subject. We're going to move on to the effects of this war and run on Russia.

Take it away, Wolfgang, in our next section.

Don't go anywhere. We'll be back after the break.

Welcome back. I'm going to debunk the theory, the delusion that the rise in the oil price has tilted the playing field in the Russia Ukraine war in Russia's favor.

My argument is that this was already tilted in Russia's favor before, and the idea that everything went well and had it not been for Donald Trump invading Iran, that was the big moment that shifted the balance.

This is indeed true that the oil price benefits Russia. No question. We have seen the figures. The typical take monthly take on oil taxes in Russia was about 4 billion before the Iran war.

And it's now shot up to 10 to 12 billion as the Russian oil not only became more expensive, but also the sanctions had been lifted on it so that this stuff can now be sold.

So this is going to have a massive impact on Russian oil revenues enough. I did the math enough to fund almost all of the Russian war expenses.

So in that sense, Russia is not going to run out of money as people had previously claimed.

The point I'm making is that these previous claims were completely delusional.

The European strategy before the war in Iran rested on the idea that Russia will run out of resources.

It's an insane thing to do. I don't normally talk about people who have a different view in these terms, because I agree that you can be on the left on the right and people have legitimate grievances and legitimate differences of opinions to my own.

But to go or to support a war of which you have no realistic chances of winning is insane. It's really insane. I have no other expression for this.

The idea that a country the size of Russia, which has a close political cooperation with China, that such a country can run out of money.

Russia is mostly a close economy. It exports, but it's a very close economy.

Russia has most of the stuff it needs to produce military gear. It has lower debt. It's quite shocking to see, you know, we have sort of debt levels of 80 to 100% of GDP, depending on which country we're talking about.

But that's sort of a standard now in the West. In Europe, at least the US has a much higher one.

Russia's debt to GDP level is like 12%. Russia practically know that.

It is fiscally sounder than we are. It has a deficit of two and a half percent and that's considered bad for Russia.

For us, you know, our deficits, you know, we're adding three, four, five percent of debt each year to up already high pile of debt.

So we have basically been sort of telling ourselves that Ukraine is the most important security issue for the EU and I can sympathize with that argument.

But we have not been consistent in how we address this. If we believe it is the most important security issue for us, we should put up the money.

We should support Ukraine so that it can either win the war, at least push Russia back to the borders of the 23rd of February 2022.

That is not happening. We are basically living in sort of some delusional state where we think we can we can spend only a very tiny amount of money helping Ukraine.

It's mostly a flag waving cheerleading type support, not real support because real support would mean that we would sacrifice money.

We would have to shift money. We would have to in practice lower either our military expenditure and in reality more like reducing social spending or increasing taxes.

It's one of the two. I don't even want to go into the debate of what's the right way to do this because it's not happening.

It's not happening in any EU country, but that's the hypocrisy of it. If you want to help Ukraine, yeah, you have to make a sacrifice and nobody is willing to make the sacrifice.

So Russia was not going to run out of money and Russia certainly not going to run out of money today.

There is indeed the Belgian Prime Minister Bhataviva made a very revealing statement on the weekend when he said that we are not doing enough to help Ukraine.

The U.S. is not doing enough. It's certainly stopped helping Ukraine. We have no strategy for victory.

So in that situation, the only option we have left is to cut a deal with Putin. It is the logic of this war and it's not just the logic of the war.

The war is really not going anywhere. The two sides are stuck. It's a war of attrition on both sides.

It is the logic of our own inaction, of our own political preferences. It is the only outcome that is possible.

And if we are in denial of this outcome, if we basically send Ukraine to fight for another two years, I think there is a potential for Russia winning this war in a much more profound way than anything that is on the table in the peace negotiations.

So the outcome could be that Russia not only gets the Donbass, which I'm sure it will in the end have, but it may get the other two regions in full.

There would under any peace agreement this would be shared. And there is even the possibility that Russia might push further into Ukraine into areas of the south of the country.

There are considerably worse outcomes than what is currently being negotiated. And one has to also look at the possibility of that and at the geopolitical consequences of that.

And that's not happening in Europe because we're all still under the influence of this sort of idea that we can make this work.

The reality for three years now is that Russia is pushing forward that Ukraine is not while defending strongly and bravely and more successfully than I anticipated and many others.

Ukraine is not able to push Russia back. And the imbalance between the two sides, both in personnel and in finance, tells me that over time Russia is headed for victory here.

We have a similar listeners and viewers of the economic class will recall that we ended 2025 in a final episode.

We said that three things would mark 2025. And those who are first that Trump won the tariff war against the Europeans, President Xi of China won the trade war against the United States and put in one the war in Ukraine.

We are slowly moving against Ukraine on the battlefields. So we are consistent. What happens now with the war in Iran and the increase in the price of oil is that what we said last December now carries more weight that it is now quite clear that the war is turning even more fiercely against the Ukrainians.

One reason is that whatever money the Europeans get together managed to scoundre either by borrowing or by begging or somehow conjuring up in order to buy American weaponry to send to Ukraine, the purchasing power of the Europeans is coming down because now that the United States are unleashing all their missiles and aminitions only run just demand and supply.

The price of these Tomahawk missiles and the various Patriot missiles is going up and there's a shortage that is being created by the war in Iran for Ukrainians. So, you know, Europeans would have to find a lot more money to provide the same ammunition to Ukraine.

And in any case, as you were saying, it would not be enough anyway in order to reverse the fortunes of the two warring sides. So, if we really care about Ukraine as Europeans, we ought to end this conversation about how again to support Ukraine, to beat Putin back to the pre 2022 or 2014 borders as some have been saying.

The discussion we should be having is what kind of peace deal? What kind of deal Europe and Ukraine is going to cut with Putin? We have to end the preposterous story that any deal with Putin is rewarding the aggressor.

Let's just end that because this is simply making a bad thing worse for Ukrainians, for Europeans, for world peace. From where I'm standing, Wolfgang, the deal that we should be offering Putin collectively, Europe, Ukraine, all of us together, is a really simple one.

On the one hand, under the umbrella of a new security arrangement for Europe and for Russia, there should be an agreement on demilitarizing a part of Europe in between NATO and Russia.

This is essential to create the opposite of what is the so-called DMZ in the Korean Peninsula. We do not want Europe to resemble the Korean Peninsula that is, you know, with two gigantic nuclear armed forces on each side of the line of control.

That is a recipe for disaster for Ukraine, for Europe. It is a recipe for the continuation of the insecurity for new wars and so on.

Secondly, what I think is really important from a humanitarian point of view, from a view of political rights of human rights. The price that Putin should be paying for such an overall Eurasian security agreement should be the recognition of political rights of Ukrainians in the Donbass.

So, in the same way, I keep banging on about that, in the same way that the Good Friday Agreement and the troubles in Northern Ireland, London maintained formal sovereignty over Northern Ireland, but in effect, the factor, you know, every village, every town, every city, from Belfast to London Derry, or Derry, as I call it, and so on, you know, is run by a dual government structure, including Protestants and Catholics.

Something like that for the Donbass area, independently of who has formal sovereignty. Now, these would be the kind of innovative proposals that a thinking European Union would be putting to Putin.

I don't know who would put it to Putin, because, as you know, as we all know, we don't have a leadership in the European Union that can speak for the European Union, also from the lion.

And of course, Kayakala's half-crazed former Estonian Prime Minister who wants to devour Russia and turn it into Syria. And she has actually said that a few weeks before she became our top diplomat.

Anyway, it does, I'm not going to go into this, but this is what European should be looking towards. This kind of peace deal that would create a Eurasian security system within which Russia could feel safe.

Ukraine could be independent, it could be neutral, like Austria was during the Cold War. That, I think, should be our narrative from now on.

And, you know, I'm sick and tired of having to explain to people that, you know, you can't win a war if you don't put money into it when you don't want to put boots on the ground. We've had this discussion.

Let's now have a discussion about what a peace deal worth having should look like.

Peace deals are non-binary, if they're successful. And we saw this, you know, even after the Second World War, there was some disputed territories between Germany and France.

The Zaland, for example, and the solution then was that Zaland was independent, and there was a referendum many several years later.

And that settled the question of whether Zaland was going to be French or German, the majority went in favor of Germany there.

You can have different, sort of, as you said, different, different arrangements about the status of the Ukrainian population on Russian territories and vice versa as well.

I mean, one of the grievances, Russian grievances was the status of Russian speakers in Ukraine or other parts of the EU.

So these are sort of things that are all on the table. There could be demilitarized zones in the Donbass, and I think that would probably be a good idea that if the Don, the entirety of the Donbass became demilitarized.

The minute things are binary, like, I don't give up this land, or yes, you do give up this land, then obviously in a binary conflict, you can't have compromise.

For the security structure, yes, I mean, the danger will always be with demilitarized zones, is that if Putin were to attack, you know, were to use the demilitarization of Ukraine to launch another attack.

And that is actually also something that we all want to avoid.

One of the negotiating objectives of the West should be to avoid another war.

And the best way to avoid another war is to actually make sure that this piece deal isn't just sort of like a first step or by anyone seen by anyone as a first step to the next war, but that it is basically accepted by both sides as

this is as good as it gets.

And that is basically what it should do, and it's complicated.

And I'm not saying that it is easy.

Here we are, the world's most potent militaries. Nobody spends more on military gear than we do.

And here we can't win the Ukraine war, and we can't win the Iran war.

What should probably reflect on why that is, and what that says about our military strategy, and how we react to this.

Now, my proposal would have been to say, like, NATO should for once only deal with NATO, not with other countries.

NATO should not be allowed to be dragged into wars and, you know, in the former Yugoslavia and North Africa.

I mean, NATO has been mostly active outside in Afghanistan and mostly been active outside its borders.

I think it's important that we redefine the purpose of NATO.

The purpose of NATO is not to defend Ukraine and it's simple as that.

The purpose of NATO is not to defend countries that are not in NATO.

If you want NATO to survive and have an impact, NATO should focus on NATO.

It should be the military alliance and protect itself against aggression from outsiders, whoever that may be.

The way I see this is going to become increasingly difficult.

Given the decisions we have taken, the decision that Trump has taken in Iran, the decision that we have taken in respect of Ukraine,

there is now a scenario that wasn't there before that the West would lose the Ukraine war and that the West would lose a major war in the Middle East.

That scenario that most of us would probably not have had on their radar screen.

And it is a scenario that is the result of overconfidence, arrogance and really stupidity.

We really don't know these other people.

The Americans, you know, Trump underestimated the Iranians.

They didn't really, and it is team underestimated.

There wasn't anyone who said, look, they might close the street of our moves or look, put in might cut a deal with the Chinese.

We didn't have that on our radar screens.

In Europe, we even underestimated the actual size of the Russian economy, believing some fairytale figures, only to realize that the Russian economy is much larger than we thought.

Our misjudgment was as basic as that.

And when you misjudge the enemy, when you underestimate the enemy, you're losing wars. That's happening.

Well, folks, there you have it.

The colonelists are not distracted by the new war in Iran.

At least we're not distracted enough.

So it's not to look at the wars that have been continuing all along, like in Ukraine, like in Gaza.

We would love to see you on Monday, the 23rd, in the evening, in Westminster, at the Emmanuel Centre,

where, walking an eye, are going to be there live to take your questions and to say things that may please or annoy you.

Like, for instance, my view that the best thing NATO can do is fold its tent and go away.

This is where we, walking an eye, may disagree. I'm sure we will disagree.

Tickets for our event are almost sold out for details of how to get the last remaining ones and for how to watch the livestream.

Go to unheard.com forward slash iconoclast live.

In the meantime, don't forget to rate, like and subscribe to the iconoclasts.