As I said in my first note at the beginning of the attack by the United States and Israel, «Two things must happen before oil prices skyrocket to $100/b or higher. First, there must be a significant and prolonged disruption to all traffic through the Strait of Hormuz, given that the strait carries around one in five barrels of oil in the world. Second, missile and drone attacks must begin hitting oil production facilities. If those two factors come into play, then the price of oil per barrel could reach triple figures..
This has happened. Today, crude oil prices hit $116 a barrel (before falling back to $11) and, even worse, natural gas prices in Europe skyrocketed to over €68 per MWh, reaching their highest levels in over three years.
The International Energy Agency (IEA) estimates that the war in the Middle East is causing the largest supply disruption in the history of the global oil market. «The flow of crude oil and petroleum products through the Strait of Hormuz has plummeted, from about 20 million barrels per day before the war to a minimal flow today; The limited ability to bypass this crucial sea lane and the filling of storage tanks have led Gulf countries to reduce total oil production by at least 10 million barrels per day. “If maritime flows are not quickly resumed, supply losses are expected to increase.”
Global oil supply is expected to plunge by 8 mb/d in March, with cuts in the Middle East partially offset by higher production from non-producers OPEC
Organization of Petroleum Exporting Countries
OPEC
OPEC groups eleven oil-producing developing countries: Algeria, Saudi Arabia, United Arab Emirates, Indonesia, Iraq, Iran, Kuwait, Libya, Nigeria, Qatar, Venezuela. These eleven countries represent 41 % of the world’s oil production and own more than 75 % of known reserves.
Created in September 1960, with headquarters in Vienna, OPEC is responsible for coordinating and unifying the oil policies of its members, in order to guarantee them stable income. To this end, production is in principle based on a quota system. Each country, represented by its Minister of Energy or Petroleum, rotates in charge of managing the organization. On July 1, 2002, the Venezuelan Álvaro Silva-Calderón is its general secretary.
+, Kazakhstan and Russia after the interruptions at the beginning of the year. The loss of energy imports and rising prices affect some countries more than others. Asia in particular suffers, followed by Europe, while, at least on the energy front, the US economy is relatively less affected.
In fact, one part of the American economy is benefiting, namely American oil companies. They are expected to receive a windfall of more than $60 billion this year if crude oil prices remain at the levels they have reached since the start of the Iran war. Investment bank Jefferies’ model estimates that US producers will generate $5 billion in additional cash flow this month alone after a roughly 47 percent rise in oil prices since the conflict began. The capitulation of Venezuela and its control by the United States is also allowing American energy companies to dramatically increase production and revenue from now highly valued Venezuelan oil exports.
But for the rest of the US economy, the sharp rise in energy prices, whether at the pump or for heating homes and industry, is already starting to push up prices overall. Even before the war began, American producer prices (that is, the prices at which manufacturers sell their products to wholesalers and retailers) were rising. The producer price index (PPI) increased by 0.7 % in February, with an increase of 1.1 % of fuel and related products. That meant that the inflation
Inflation
Cumulative rise in prices as a whole (for example, a rise in the price of oil, which then leads to an upward readjustment of wages, then a rise in other prices, etc.).
of the IBP increased by 3.4 % since February of last year. Inflation in the United States is not heading towards the inflation target Federal Reserve
FED
Federal Reserve
Officially the Federal Reserve System, usually abbreviated to Federal Reserve or Fed, is the central bank of the United States. It was created on December 23, 1913 by the Federal Reserve Act, also called the Owen-Glass Act, after several banking crises and the banking panic of 1907.
of 2 % annual, but it goes up.
Regarding economic growth, the second estimate of real growth of the GDP
Gross domestic product
GDP
GDP is an index of the total wealth produced in a given territory, estimated based on the sum of added values.
of the United States in the fourth quarter of 2025 was sharply revised to an annualized ratio of 0.7 %, well below 1.4 % in advance estimate. The new estimate reflects downward revisions in all components of GDP: exports, consumer spending, government spending and investment. US real GDP growth for 2025 is now estimated at 2 %, from 2.4 % in 2024 and 3.4 % in 2023, while real per capita income increased by only 1.1 % in 2025 and fell in the last quarter of that year.
The slowdown in domestic output growth is now also accompanied by a decline in employment growth. In January, the US economy lost 92,000 jobs. Job openings in the professional and business services sector have fallen to just 4.0 per 100 employees, the lowest since the 2020 pandemic crisis and almost 60 % from peak white collar employment in 2022. When white collar hiring slows this down dramatically, the rest of the labor market generally follows the trend.
Now the Iran war will widen the gap between slowing economic growth and employment and rising inflation; In other words, stagflation is the order of the day. Donald Trump’s pick to head the Bureau of Labor Statistics said the U.S. economy is too weak to handle oil above $100 a barrel: “I don’t think this is an economy that can manage $100 a barrel of oil, it just isn’t”said EJ Antoni to the FT. «The economy is weaker than we thought, and inflation is worse than we thought». Sales of new homes plummeted by 17.6 % in January, the biggest drop since 2013.
This staflationary environment has put the US Federal Reserve in a dilemma. Should the Federal Reserve raise its interest rate? interest
Interest
Amount paid as remuneration for an investment or received by a lender. Interest is calculated based on the amount of capital invested or lent, the duration of the operation and the last rate applied at that time.
politics in an attempt to curb inflation; Or should I reduce the rate to support jobs and growth? Yesterday, the Federal Reserve decided by a majority in the monetary policy committee to do nothing. The Federal Reserve raised its inflation forecast this year and indicated that a rate cut was only likely in 2026, if it occurs at all. Far from heading toward the Federal Reserve’s inflation target of 2 % inflation is now heading towards 3 % or more. Today, the Bank of England and the BCE
BCE
European central bank
The European Central Bank is an institution based in Frankfurt, created in 1998. The countries of the euro zone* transferred their powers in monetary matters to it and its official function is to ensure price stability (fight against inflation) in said zone. Its three decision-making bodies (The Governing Council, the Executive Committee and the General Council) are made up of the governors of the central banks* of the member countries and/or “recognized” specialists. Its statutes make it “independent” politically but it is directly influenced by the financial world.
They also maintained their policy rates.
Mainstream economists believe that what primarily causes inflation is an increase in “inflation expectations,” a behavioral theory that this author has refuted several times. Five-year and five-plus year inflation expectations have not moved much in the last five years. The rise in inflation mainly had a supply-side cause in the post-pandemic period and it will be the same this time.
The impact of the war is intensifying the widening gap between America’s wealthy elite and the rest of American households, a gap that mainstream economists have called a “K-shaped” economy. Spending growth has been noticeably faster at the top end of the income spectrum, while consumers at the bottom, who experienced a brief burst of high wage growth after the pandemic, are now seeing sluggish wage growth.
Forbes magazine has just published its latest annual ranking of global billionaires. The rate at which extreme wealth is increasing is simply astonishing. According to inequality expert Gabriel Zucman, the wealth of global billionaires has now reached the equivalent of 17 % of world GDP.
The war with Iran is also revealing new risks to the US economy that could trigger a financial crisis. The 2008 global financial crisis was not caused by a high debt
Debt
Multilateral debt Which is due to the World Bank, the IMF, regional development banks such as the African Development Bank and other multilateral organizations such as the European Development Fund.
private debt Loans contracted by private borrowers regardless of the lender.
Public debt Set of loans contracted by public borrowers. Rescaling. Modification of the terms of a debt, for example modifying the maturities or in relation to the payment of the principal and/or interest.
public, as many mainstream economists continually argue. Instead, it was private sector debt default that led to government bailouts and rising public debt then followed. In 2026, the private debt crisis is once again the danger. The recent report by an obscure financial analyst group, Citrini Research, on the future impact of AI caused a stock market selloff in software companies before financial investors decided there would be no crash in that sector.
What has become a problem, however, is the possibility of defaults and bankruptcies in companies that have borrowed money, not from traditional commercial banks, but from what are called private sources of credit. Over the past two decades, direct lending by private funds has become a crucial branch of the United States financial system, providing credit to startups and other businesses that would have difficulty obtaining bank loans or selling bonds. A classic private credit fund takes money from pension funds and the like and locks it in for five years or more. That allows these private funds to make long-term loans to companies without fear that their investors will want their money back.
But some of the big guns in private finance decided to attract pension funds and others to invest by offering “semi-liquid” funds, which promised investors quarterly access to their money, with the caveat that withdrawals could be limited to 5 percent of the fund’s assets to avoid uncontrolled sales. These “financial products” were a success, attracting almost $200 billion in investment and growing 60 percent annually between 2021 and last year.
But these private credit funds are not regulated like commercial bank lending, so there is inherent risk involved, just as with subprime mortgage lending in the 2007-8 financial crisis. It is true that the size of the private credit market is relatively small compared to the total US loan market. Furthermore, private credit funds are highly capitalized, with equity typically representing 65-80% of total assets, more than six times the capitalization of banks, where equity represents around 10%. As a result, the Federal Reserve’s 2025 stress tests found that even in severe recession scenarios, private credit would not threaten financial stability. Across the spectrum of US credit markets, private credit accounts for only a modest portion of total credit outstanding.
So there’s nothing to worry about? That’s what they said about mortgage companies lending wildly in 2008. Small clots that build up can also cause blockages for larger clots. As the U.S. economy has slowed, the default rate on private credit (that is, companies that borrow from private credit funds) has reached 9.2 %. It is higher than the 2008 bank loan default rate.
UBS says private credit defaults could reach 15 %. That’s three times the peak bank loan default rate in 2008.
As a result, investors in private credit funds are trying to get out of the mess. And while most private credit funds have rules that limit quarterly redemptions to 5 percent of assets, allowing them to “pay off” (that is, prevent) excess outflows, the exodus already resembles that of 2008.
Furthermore, commercial and private credit banks are closely connected. “Banks are lenders, counterparties, service providers and sometimes backups to non-bank entities”observes the Spaniard Hernández de Cos, lamenting the «complex ecosystems of leverage
Leverage
LEVERAGE: Leverage refers to the effects on the profitability of capital of an entity (company, bank, etc.) that resorts to debt. The leverage ratio calculates the relationship between the equity* of a given entity and the volume of its debts.
liquidity transformations and duration risk» outside the control of regulators, making private credit a potential channel of systemic risk. US banks have $300 billion in private credit exposure: Wells Fargo leads with $60 billion in loans to private credit funds. JPMorgan, which recently reduced software-linked loans and restricted lending, has $22 billion in exposure.
Goldman Sachs estimates that up to $70 billion could flow out of private credit funds over the next two years, forcing hard-hit managers to sell loans to meet redemption requests. And the longer the turmoil in the Middle East continues, the more the risks will increase. Or to put it another way: the combination of credits
Credits
Sum of money that one person (the creditor) has the right to demand from another person (the debtor).
private credits
Loans granted by commercial banks, regardless of the borrower.
Public credits
Loans granted by public creditors, regardless of the borrower. private interests with the war in Iran may not seem damaging enough to cause a global recession, but it certainly could cause a financial collapse.
But perhaps the rise of AI technology will come to the aid of the American economy. Some argue that US labor productivity is already increasing faster as a result of companies adopting AI models and AI agents. In 2025, US labor productivity increased by 2.8 % compared to 2.3 % in 2024, above the long-term historical average and above consensus forecasts.
Labor productivity is calculated as real GDP divided by hours worked. This can vary with changes in technology and in the amount of capital per worker. But mainstream economists also look at total factor productivity (TFP), which is a measure of productivity growth not explained by increases in capital investment or labor intensity. That is also increasing.
It all depends on how quickly companies and their employees adopt AI models in their work and how far it spreads across the economy. Economists at the St. Louis Federal Reserve believe that workers using AI models could save 5.4 % of your work hours, or 2.2 hours per week. But a 2024 working paper by Kathryn Bonney and others found that only 5.4 % of companies had formally adopted generative AI as of February 2024. That suggests that its adoption by workers remains mostly informal and will not show up in productivity statistics.
In an article, Jed Kolko reviewed recent research on AI and its impact on the US labor market. He concluded that “early research findings on the impact of AI on the labor market are inconclusive and weak signals about the future, and only part of the AI research picture”. And “the commercial diffusion of the current generation of large language models (LLMs) is so recent that any lasting economic impact would likely take years to appear in employment, production or productivity data”.
Current data from the Census Bureau’s Business Trends and Outlook Survey shows that less than one-fifth of companies are using AI in any capacity, and even fewer are using AI directly to produce goods and services. In fact, the “AI transitional disruption to date is not outpacing recent technological changes”. The occupational mix has changed over the past three years at a pace similar to the years following the start of the commercial computing era (1984) and the commercial Internet era (1996) and has not accelerated since the launch of ChatGPT.
So the productivity gains expected from substituting human labor and replacing it with AI agents still appear to be some distance away. Meanwhile, the massive AI investment bubble could soon burst. For example, the leader in AI, OpenAI. It’s a company with $730 billion in invested assets, but last year it generated just $13.1 billion in revenue, losing $8 billion. This year, losses could reach $14 billion, with cumulative losses reaching $143 billion by 2029! These projected losses are five times what Uber racked up before turning a profit. OpenAI claims it will be profitable by 2029, but its ChatGPT AI model’s web traffic share has fallen from 86.7 % al 64,5 % in the last 12 months as Google’s Gemini eats into its market share. And the cheap Chinese DeepSeek can match the performance of ChatGPT at only 1/30th the cost.
OpenAI needs 1.2 billion paying subscribers to turn a profit by 2029. That doesn’t seem likely. OpenAI hopes to maintain the loans and equity investments because it says it can soon achieve an AI model that is super intelligent, that reasons on its own at a level higher than the human brain. This is the “holy grail” of AI companies, the moment of total enlightenment. But the holy grail is just a 19th century fiction.
As Ruchir Sharma said last October, «The United States is now the big bet in AI». It is seen as the magic solution to every threat to the American economy. But can it work? There will most likely be an AI financial failure first and possibly a recession before that question is answered. So AI as a savior for Trump and the American economy remains a two-way bet.
Fuente: sinpermiso.infoextracted from The Next Recession
Translation: G. Buster