By Dan Steinbock         

The lingering energy shock is morphing from the Asian epicenter to a global economic drag. The US/Israel war imposes a fatal penalty on global growth.

When the US-Iran conflict escalated earlier this year, the immediate concern centered on oil prices and the Strait of Hormuz.

But the real danger was never confined to crude oil. The crisis has evolved into a broader energy, logistics, fertilizer, food and financial shock.

What began as a regional conflict has become a structural drag on the global economy.

Prolonged pain

Recent warnings by the International Energy Agency (IEA), the International Monetary Fund (IMF) and the World Bank underscore the same point.

Even if military hostilities continue to ease, energy systems, shipping networks and commodity supply chains will require many months—and in some cases years—to normalize. The result is likely to be a weaker global economy in the second half of 2026 and throughout 2027.

Figure 1: Global Energy Shock Impact Trends 2026 H2 – 2027

The core issue is persistence. The IMF warns that prolonged energy disruptions could push the world toward recessionary conditions. The World Bank expects rising energy prices in 2026, while the IEA reports tightening supplies, falling inventories and continuing refinery disruptions.

The world faces a prolonged period of elevated energy costs, fragmented trade routes, higher insurance premiums, supply-chain restructuring and slower productivity growth.     

US: Resilient but increasingly stagflationary

The United States is better positioned than most advanced economies because of domestic energy production and continued AI-led investment. Yet, higher fuel, petrochemical and transport costs are already feeding through the economy.

Gasoline prices remain well above pre-war levels, while energy-intensive industries face sustained cost pressures.

Growth is likely to remain positive through 2027, but below pre-conflict expectations. Inflation may prove more persistent than policymakers anticipated.

The principal risk is not recession but a stagflationary environment characterized by slower growth, elevated prices and tighter financial conditions.

By targeting Iran’s strategic capabilities while expanding military deployments across the region, the US has contributed to a prolonged risk premium in global energy markets.

At the same time, it has left Europe, Japan, South Korea and much of the developing world highly vulnerable to the resulting energy shock.

China: Economic exposure, strategic beneficiary  

As the world’s largest energy importer, Beijing remains vulnerable to disruptions in Gulf oil and LNG supplies. Higher energy prices, weaker external demand and increased transport costs will likely moderate Chinese growth through 2027.

But Beijing has spent more than a decade preparing for precisely such contingencies. Diversified energy imports from Russia, Central Asia and Africa, extensive strategic petroleum reserves, large-scale renewable investments and expanding regional trade networks provide buffers unavailable to most Asian economies.

More importantly, the crisis reinforces China’s long-standing argument that excessive dependence on Western-dominated maritime routes and financial systems constitutes a strategic vulnerability.

As Gulf states, Asian economies and many Global South nations seek greater economic resilience, China is positioned to benefit through expanded infrastructure investment, energy partnerships and trade integration.

The United States remains the predominant military actor in the crisis, but China is emerging as one of its principal geopolitical beneficiaries.

Europe: The most vulnerable advanced region       

Europe remains the weakest link among advanced economies. The continent has not fully recovered from the energy consequences of the Ukraine conflict.

The Iran-related shock has compounded existing vulnerabilities by raising LNG competition, industrial costs and fertilizer prices.

Germany illustrates the challenge. Its manufacturing sector faces a second major energy shock within five years. Industrial competitiveness is likely to deteriorate further, while fiscal constraints limit governments’ ability to cushion households and firms.

Southern Europe may perform somewhat better due to tourism, but energy costs will continue to restrain investment.

For Europe as a whole, 2027 may bring stagnation rather than recession. Yet stagnation itself represents a significant deterioration relative to earlier expectations.

European geopolitics revolves around an imagined Russian attack, yet the region’s economic fundamentals are being undermined by the protracted energy shock.

Asia: Still the epicenter   

Asia remains the region most exposed to the lingering crisis. The transmission mechanisms identified earlier—oil, LNG, trade logistics and financial spillovers—have intensified rather than disappeared.

The most vulnerable major economies are Japan, South Korea, India and many Southeast Asian importers. All depend heavily on imported hydrocarbons. Higher energy bills worsen trade balances, pressure currencies and reduce household purchasing power.

India faces a more difficult balancing act. Strong domestic demand and favorable demographics remain strengths, yet sustained oil prices near or above $90 per barrel would raise inflation and fiscal pressures. The country’s growth rate will likely remain among the world’s highest, but below its potential.

Across Asia, the crisis is reinforcing long-term trends toward energy diversification, regional trade arrangements and reduced dependence on vulnerable maritime chokepoints.

Middle East: Huge structural damage 

In the Middle East, oil-exporting states benefit from higher prices but suffer from geopolitical instability and disrupted export routes.

The Gulf monarchies—particularly Saudi Arabia, the UAE and Qatar—possess financial buffers that allow them to absorb short-term volatility. Yet, infrastructure damage, shipping disruptions and investment uncertainty are imposing significant costs. Full normalization of regional energy logistics could take years.

Iran remains the principal economic casualty. Even if hostilities diminish, sanctions, damaged infrastructure and capital flight will weigh on growth for years. Reconstruction needs will be immense.

The broader regional consequence is the acceleration of economic diversification. Gulf states will intensify efforts to reduce dependence on hydrocarbon exports, while simultaneously investing in alternative trade corridors and logistics networks.

Since fall 2023, a set of unwarranted wars in the Middle East has severely penalized the colossal modernization initiatives in the Gulf.

Latin America: Mixed effects, darkening skies                    

Latin America faces a divided outlook. Commodity exporters such as Brazil benefit from higher agricultural and resource prices. Yet gains are partly offset by weaker global demand and tighter financial conditions.

Mexico faces indirect exposure through slower US growth and manufacturing demand.

Argentina illustrates the vulnerability of heavily indebted economies. Higher energy costs and global financing pressures complicate stabilization efforts.

More broadly, countries with large fuel-import bills will face renewed inflationary pressures.

Overall, Latin America is unlikely to experience a major crisis, but the region’s recovery trajectory will slow amid darkening skies. It is the target of the Trump administration’s lethal imperial dreams – from Panama, Venezuela, Cuba and Nicaragua to Argentina, even Colombia.

Africa: The disproportionate victim     

Africa may suffer the greatest relative damage. The World Bank and IMF have repeatedly warned that poorer economies bear a disproportionate burden from higher fuel and fertilizer costs.

For many African countries, the energy shock rapidly becomes a food-security shock. Rising transport, fertilizer and import costs feed directly into consumer prices and poverty rates. Countries such as Egypt, Kenya and Senegal face growing external financing pressures.

Even resource exporters like Nigeria and Angola confront governance and investment challenges that limit the benefits of higher oil prices.

The most concerning issue is food security. There are deep interconnected vulnerabilities linking natural gas, fertilizer production and agricultural output. The consequences could extend well beyond 2027.

Global outlook through 2027         

The most likely outcome is neither global recession nor rapid recovery. Instead, the world appears headed toward a prolonged adjustment period characterized by Brent crude averaging roughly $85–100 per barrel, plus persistently elevated LNG and shipping costs.

These translate to higher food and fertilizer prices, slower global trade growth, renewed inflationary pressures and lower business investment due to uncertainty.

Figure 2: Persistent Disruption Impact

Under this baseline, global growth is likely to remain near or in the proximity of 2.8–3.1% through 2027; below pre-conflict expectations but above outright recession levels.

The principal danger lies in a prolonged energy disruption or renewed military escalation, which could push oil prices toward the $110–125 range envisioned in adverse IMF scenarios and substantially increase recession risks. The era of relatively cheap, secure and politically predictable energy flows is fading.

What is emerging instead is a more regionalized, more expensive and more geopolitically contested energy system—one whose economic consequences will extend well beyond the battlefield and well beyond 2027.

The original version was published by China-US Focus on June 5, 2026.

About the Author

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). He is also the author of The Obliteration Doctrine (2025) and The Fall of Israel (2024). For more, see https://www.differencegroup.net

By Dan Steinbock

What began as Israel’s obliteration in Gaza now extends to Lebanon, Iran and the Gulf, thanks to US arms and finance. If diplomacy fails to interrupt this trajectory, the expansive arc of war will transform a regional conflict into a prolonged international disorder.

On May 31, Lebanese Prime Minister Nawaf Salam gave a televised address in which he condemned Israel’s invasion and intensified attacks on southern Lebanon as a dangerous escalation, warning that a “scorched-earth policy” will never bring security to Tel Aviv: “Israel must understand that with its scorched-earth policy, collective punishment, and the bulldozing of villages and towns, it will gain neither security nor stability.”

As Salam said, this process is now advancing. “Israel is practicing mass displacement that amounts to collective punishment. It no longer targets only specific locations or areas, but has adopted a policy of comprehensive destruction of cities, towns, and all aspects of life within them.”

Tactical wins, strategic devastation

Israel’s Obliteration Doctrine is a lethal mix of scorched earth policy, collective punishment and civilian victimization, coupled with massive indiscriminate bombardment and systematic use of artificial intelligence (AI), as I have demonstrated in The Obliteration Doctrine (2025) and The Fall of Israel (2024).

This doctrine often goes hand in hand with ecocide, which Israel has committed in Gaza and is committing in Lebanon. The net effect is ethnic cleansing and, given continued and unhindered escalation, genocidal atrocities.

Whether Prime Minister Netanyahu, former PM Naftali Bennett or former head of the Israeli defense forces Gadi Eisenkot will win the 2026 Israeli legislative election is effectively immaterial. With or without Netanyahu, the Obliteration Doctrine will prevail.

Netanyahu brought to power the most far-right Messianic government in Israeli history. Naftali Bennett is a millionaire politician and the ex-leader of a religious Zionist far-right party. Ironically, the more “moderate” of the three is the ex-military chief Gadi Eisenkot who first tested the Obliteration Doctrine in Dahiya, a Shia enclave in Beirut in 2006.

The greatest threat to Israel’s long-term future is not external enemies alone, but the transformation of military escalation into a permanent governing principle. Once security policy becomes inseparable from territorial expansion, ethnic cleansing and perpetual warfare, the consequences extend far beyond the battlefield.

From Gaza to Lebanon and Iran – and back

The Gaza war has already produced one of the gravest humanitarian crises of the 21^st century. Across much of the Global South, public opinion increasingly interprets the destruction of Gaza through the lens of displacement, collective punishment and ethnic cleansing. Understandably, the expansion of military operations into Lebanon has reinforced those perceptions.

This divergence in perception is becoming one of the defining geopolitical fault lines of our era. In the view of the Global South, military realities on the ground continue to outpace diplomacy. The question is no longer whether the conflict will reshape the region, but how extensive that transformation will become.

In The Obliteration Doctrine, my greatest concern was that “what happens in Gaza won’t stay in Gaza.” It is now a lethal blueprint and a broader regional template. Hence, the large-scale destruction of towns, repeated displacement of civilians, and continuing cross-border operations in Lebanon.

The broader U.S.-Israel-Iran confrontation has become increasingly intertwined with the Lebanon-Gaza conflict, with attacks, counter-attacks and continuing tensions around the Strait of Hormuz generating major energy-market disruptions.

The energy crisis connection

The strategic significance of the conflict has increased dramatically because it now intersects directly with the U.S.-Israel-Iran confrontation. Even partial disruptions have triggered sharp increases in oil and gas prices and heightened concerns regarding inflation, growth and supply security.

Since the escalation of regional conflicts stretching from Gaza and Lebanon to the Red Sea and the Persian Gulf, energy markets have become increasingly vulnerable to disruption. Shipping routes, insurance costs, strategic chokepoints and investment decisions have all been affected by growing instability. What began as the devastation of Gaza has evolved into a crisis with potentially global economic consequences.

The Middle East remains the world’s most important energy-producing region. Even when actual supply disruptions remain limited, the risk premium generated by military escalation can significantly increase energy prices. Such increases function as a global tax on growth – as the epicenter of the crisis, Asia is a prime example.

For advanced economies already burdened by high debt levels and slow productivity growth, persistent energy inflation undermines economic recovery. For developing countries dependent on imported energy, the consequences are even more severe. Rising fuel costs translate into higher food prices, greater fiscal deficits and heightened social instability.

The Gaza-Lebanon crisis is therefore not merely a regional conflict. It is part of a wider process linking geopolitical fragmentation, energy insecurity and economic deceleration.

US-Israel connection

Washington remains Israel’s indispensable strategic partner. Military cooperation, intelligence sharing and diplomatic support continue to provide the foundation of Israel’s security architecture. Yet the relationship faces growing contradictions.

American policymakers increasingly confront a centrifugal dilemma. On one hand, they seek to preserve Israel’s military superiority and deterrence capabilities. On the other, they must manage the economic and geopolitical consequences of prolonged regional conflict.

At the same time, these policymakers are challenged by the increasingly vocal Israel lobby, the export exigencies of the US military contractors and the rising opposition of the American electorate, particularly the younger voter cohorts.

Every expansion of the war imposes costs on broader American interests. Energy volatility threatens global growth. Escalation risks confrontation with regional powers. Humanitarian devastation fuels anti-American sentiment across much of the Global South.

So, Washington’s objectives are becoming increasingly complex and self-defeating. It seeks Israeli security without regional war, deterrence without escalation, and strategic dominance without bearing the full economic and political costs of prolonged conflict.

As those goals are proving increasingly difficult to reconcile, Washington is burdened by both Israeli insecurity and a regional war, escalation without deterrence, the full spectrum of costs of the prolonged conflict – and increasing concerns about crumbling strategic dominance in the region.

Expanding arc of war – and risks of miscalculation

The most significant recent development is the gradual fusion of multiple conflicts into a single strategic theater. Gaza, Lebanon, the Red Sea, Syria, Iraq and the Persian Gulf increasingly form interconnected fronts within a broader contest between the U.S.-Israel partnership and Iran’s regional network.

Military actions in one arena now generate repercussions across the others.

This expanding arc of war magnifies the risks of miscalculation. A localized confrontation that might once have remained contained now possesses the potential to trigger regional escalation, energy shocks and wider geopolitical fragmentation.

This is precisely how localized wars become systemic crises.

Israel risks validating the warning implicit in both The Fall of Israel and The Obliteration Doctrine: that a state can achieve tactical successes while simultaneously undermining the foundations of its own long-term security and legitimacy.

Every tactical win is setting the stage for further strategic failure, deeper divides internally, and greater international estrangement.

International crisis of credibility

The international response has exposed a growing crisis in global governance. Until the devastation of Gaza, many Western governments emphasized Israel’s security concerns while expressing futile concern about civilian casualties in the Middle East.

Many countries in Asia, Africa and Latin America have a markedly different perspective, focusing on humanitarian suffering, displacement and alleged violations of international law. As these narratives diverge, confidence in international institutions continues to erode.

For much of the Global South, the perception of selective enforcement of international norms has become increasingly difficult to ignore. If international law appears applicable to some states but not others, its legitimacy inevitably suffers. This credibility gap may prove one of the most enduring consequences of the conflict.

The central question is no longer whether the Gaza war has transformed the Middle East. It has. The question is whether the region is moving toward stabilization or toward a broader doctrine of permanent conflict.

If military escalation continues, the consequences will extend far beyond Israel, Lebanon and Gaza. Energy insecurity, economic fragmentation, humanitarian crises and geopolitical polarization will increasingly shape the international system.

The tragedy is that all parties face mounting risks. Lebanon risks further devastation. Gaza faces a reconstruction challenge of historic proportions. The United States risks strategic overstretch. The international community risks institutional irrelevance.

The road ahead

Modern conflicts are no longer judged solely by military outcomes. They are judged by their developmental consequences. A military victory that produces permanent economic devastation can become a strategic defeat.

The tragedy of the current moment is that every actor increasingly perceives escalation as necessary while simultaneously fearing its consequences.

Lebanon risks deeper devastation. Gaza faces prolonged humanitarian catastrophe and uncertain political futures. Iran confronts mounting economic and military pressures. The United States faces growing strategic commitments. Israel confronts rising diplomatic isolation even as it seeks greater security.

In the resulting obliteration dynamic, military escalation progressively destroys the political and economic foundations needed for lasting peace.

In this view, the debate over ethnic cleansing, genocide and obliteration is not merely a legal or moral argument. It is a debate about whether the region can escape a cycle in which every military victory plants the seeds of the next catastrophe – and possibly of an overwhelming global downturn.

The original version was published by the Informed Comment (US) on June 4, 2026.

About the Author

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). He is also the author of The Obliteration Doctrine (2025) and The Fall of Israel (2024). For more, see https://www.differencegroup.net