‘Asian economies could end up paying the cost of Iran war’: West Asia expert to The press reporter

As tensions between Iran, america, and Israel escalate and fears develop over disruptions within the Strait of Hormuz, considerations concerning the world financial and geopolitical fallout are intensifying. In an unique interview with The press reporter, Mohammad Reza Farzanegan, Professor of Economics of the Center East at Philipps-Universität Marburg in Germany and a number one knowledgeable on Iran’s political financial system, warns that the battle might have far-reaching penalties past the area.  

Farzanegan says extended disruption in Gulf power routes might sluggish world financial progress and hit Asia’s main oil-importing economies the toughest. He additionally cautions that the struggle dangers increasing right into a broader regional confrontation whereas probably reshaping Iran’s strategic orientation towards powers akin to China and Russia.

Edited Excerpts:

Tensions between the US, Israel, and Iran had been constructing for a very long time, however the battle escalated on February 28. We are actually into the fifth day of the struggle. How do you assess the present scenario?

The present scenario is, as you may as well see within the news and based mostly on the data we get from Iran—though these days it’s not simple to acquire direct data as a consequence of communication disruptions in Iran—that the resistance in opposition to the army invasion by Israel and the USA is constant.

Iran will not be ready the place it will conform to a ceasefire as a result of it believes that stopping the struggle at this level would imply that the prices of stopping it will exceed the advantages. That will not be the equilibrium they count on from such a choice.

The scenario at present entails each day army assaults on infrastructure, army organizations, civil organizations, and establishments representing the Iranian authorities — official establishments. Nonetheless, the assaults should not restricted to those locations.

Once we have a look at Tehran, the damages throughout completely different elements of town — from north to south and east to west — are vital. There may be severe concern that these assaults will start concentrating on power infrastructure and different services that would take a few years to reconstruct. That will end in a serious monetary loss for Iran.

The prices are additionally not restricted to Iran. As you will have seen within the news, there’s an enlargement of the battle throughout the area. The calculation throughout the Iranian administration is that if Iran is paying the prices of this struggle, then others who’re straight or not directly concerned in logistics, intelligence, and different types of help to Israeli and American forces must also bear these prices.

That’s the reason we see Iran concentrating on US army bases throughout the area. The struggle, and the enlargement of it, doesn’t seem prone to lower within the brief time period. A lot is determined by how strongly the opposite aspect insists on persevering with this struggle in opposition to Iran, which, by the best way, in line with worldwide legislation, has been questioned by many observers globally.

Many are questioning the legality of what they describe as an imposed struggle on Iran in the midst of negotiations. In keeping with these observers, there isn’t a clear authorized foundation for it.

That is the image we at present have within the brief time period.

The long-term perspective relies upon closely on Iran’s means to finance this resistance. Any resistance requires funding, sources, social resilience, and social unity in opposition to what they see as aggression.

Sadly, a part of this resilience has weakened over the previous years and months. I say years as a result of Iran has been below large sanctions by america and the European Union, which has severely restricted its means to finance resistance.

On the identical time, we noticed throughout January 2026 protests that the repression of these protests additionally eroded a part of the Iranian authorities’s social capital inside society.

This may increasingly additionally clarify why some opposition teams have been calling for intervention below the doctrine of “duty to guard.”

So we’re observing a really advanced scenario. A number of elements have made the scenario in Iran extraordinarily dangerous for the area. The spillover results of this battle might have an effect on Iran’s neighbors and even international locations that aren’t rapid neighbors.

These results are already changing into seen and can possible influence the worldwide financial system, oil costs, and different sectors very quickly.

The US has overtly talked about regime change in Iran, particularly after the assassination of Ayatollah Ali Khamenei. However trying on the developments to this point, do you assume Washington is transferring away from that goal, or is regime change nonetheless the final word purpose?

I’m not likely seeing that they’re diverging from that goal. That’s the first section — the change within the regime — and it has been continuously talked about by Mr Trump, his administration, his international minister, and different main members of their get together. The best scenario for them is a change within the political regime.

That doesn’t essentially imply splitting the territory of Iran from the American perspective — I’m not speaking concerning the Israeli perspective. The People should not essentially preferring a chaotic Iran, as a result of they know {that a} chaotic Iran with a inhabitants of 90 million and plenty of ethnic teams could be a catastrophe for the area and for all of the investments they’ve within the space.

You possibly can think about the type of destructive externalities a chaotic Iran would produce for your complete area, creating long-term instability. Nonetheless, regime change is clearly one thing they’re fascinated with.

Now we have additionally heard reviews that the CIA is in touch with Kurdish separatists, probably to arm and organise them in case of a floor operation. That will be a really harmful transfer towards destabilizing the Iranian political system within the hope of reaching regime change.

In the event you have a look at earlier years, regime change was at all times on the agenda as one of many aims behind the worldwide sanctions imposed on Iran. These sanctions have been typically justified when it comes to democratisation, human rights, and related points. However on the finish of the day, it was fairly clear that the sanctions have been supposed to extend poverty, frustration, and financial distress among the many inhabitants in order that public dissatisfaction would ultimately translate right into a change within the political system.

That translation can take completely different kinds. Generally the political institution can change by way of democratic elections, however we all know that this isn’t very reasonable in lots of Center Japanese international locations. One other pathway could possibly be large-scale protests, anti-government demonstrations, rising dangers of terrorism, or within the worst case even civil struggle.

Sanctions have been meant to attain such outcomes with out using army drive. Navy intervention requires deploying massive quantities of apparatus and sources. It’s pricey and will result in casualties amongst one’s personal troops, which is politically costly for an administration like Trump’s.

Due to this fact, imposing financial ache by way of sanctions was seen as a extra handy technique. Nonetheless, sanctions didn’t succeed within the case of Iran. In any other case, there would have been no want for army intervention in a rustic already below heavy sanctions.

This can be a clear instance of the long-term failure of sanctions. In Iran’s case, it’s evident that sanctions didn’t work. Sadly, we now see a scenario the place struggle has been imposed on the nation.

I consider the final word goal stays regime change. Such a change might occur with out dividing Iran’s territory—it might hold the nation intact as it’s at the moment. That’s in all probability what the People are fascinated with.

Nonetheless, it’s not solely clear what the agenda of Israel is. A considerably weakened Iran is actually in Israel’s curiosity. It’s also unclear whether or not Israel is alone on this view or how different neighboring international locations—significantly these within the southern Persian Gulf—see the scenario. A few of them would possibly take into account a powerful Iran to be a menace or threat.

To what extent additionally they want such an end result will not be solely clear. However we do know that what Israel is searching for will not be essentially the identical as what the People need on this battle, and there are variations between their approaches.

Nonetheless, as earlier than, regime change seems to stay an goal they want to obtain.

Nonetheless, the query is whether or not it may be achieved by killing civilians. Previous experiences counsel that when a rustic like Iran comes below direct exterior army assault, the “rally across the flag” impact turns into very robust among the many inhabitants.

I consider that any significant change must come from inside Iran itself and never within the brief time period. It can take time. It can require substantial efforts, persistence, and institutionalized reforms. That will be the most effective end result for everybody—each for these dwelling in Iran and for the broader area—as a result of change coming from inside would keep away from the a lot increased human and financial prices that exterior intervention might impose, not solely on Iran however on your complete area.

One main fallout of this struggle is the financial influence. Iran has threatened to assault any ship passing by way of the Strait of Hormuz, successfully shutting one of many world’s most important oil routes. How do you assess the financial fallout of this battle, particularly given its potential influence on the worldwide financial system?

Specializing in the Center Japanese international locations, the results are already very clear. Each oil exporters and oil importers within the area are being affected.

For oil exporters, the problem is clear. Different GCC international locations depend on these waterways to export their oil to worldwide markets. Iran has the potential to shut the Strait of Hormuz and has successfully performed so. There could also be exceptions—for instance, some Chinese language shipments would possibly nonetheless go by way of for political causes—however most others are actually dealing with severe dangers.

The idea that oil markets wouldn’t react strongly to Iranian actions has confirmed unrealistic. Oil costs are already rising. Earlier predictions steered that Saudi Arabia would possibly compensate for any provide shortfall by rising manufacturing. Nonetheless, Iran’s direct assaults on power services, terminals, and different infrastructure which might be vital to regional provide have modified these assumptions. The sooner expectations not maintain.

Iran seems to be making an attempt to extend the price of the struggle by forcing others to bear a part of that price as nicely. In that sense, oil markets are extraordinarily delicate to developments, and the scenario might worsen within the coming days and weeks.

For Center Japanese international locations that aren’t main oil exporters, the results are additionally destructive. Many of those economies rely closely on remittances from employees employed within the oil-rich GCC states. In the event you have a look at international locations akin to Egypt, Yemen, Lebanon, Morocco, and different North African nations, a big portion of their international alternate earnings comes from labor migration to Gulf economies.

Employees from these international locations—in addition to from India and East Asian nations—ship remittances again residence. If the economies of the Gulf international locations weaken because of the battle, remittances will decline. That can create a sequence response affecting many economies, no matter whether or not they’re oil exporters or importers.

One other main consequence is the sharp enhance in funding threat throughout the area. It doesn’t even require large-scale bodily destruction in GCC international locations. A number of drone or missile assaults on airports, ports, or power services are sufficient to considerably enhance the notion of threat.

We all know that many of those economies rely closely on worldwide funding and tourism. If buyers and vacationers start to understand the area as unstable, the circulate of funding and tourism might sluggish dramatically. Even the final sense of insecurity is sufficient to discourage capital inflows.

From the Iranian perspective, the calculation seems to be to extend strain on different international locations and on america to cease the struggle. International locations akin to Saudi Arabia, Qatar, and the UAE have leverage with Washington. If the financial prices rise for them as nicely, they could be pushed to exert extra strain on US coverage.

China is one other vital issue. China has made vital investments within the area and has robust financial pursuits there. For Beijing, escalating battle and violence within the Center East is clearly not good news. That will encourage China to turn into extra energetic diplomatically in pushing for an finish to the struggle.

As I discussed earlier, many observers argue that this struggle lacks a transparent authorized foundation. From their perspective, there was no convincing authorized justification introduced to the general public for launching a struggle in opposition to Iran in the midst of negotiations, particularly when Iran had indicated it was prepared to scale back elements of its nuclear actions.

Curiously, the justification for the struggle can also be considerably contradictory. President Trump beforehand claimed that Iran’s nuclear services had already been destroyed, but the present struggle is being justified on the grounds that these services are nonetheless energetic.

In any case, the financial and monetary prices of this battle shall be huge. And that’s not even contemplating the human price—mind drain, migration, displacement of individuals, and environmental injury.

For instance, injury to grease fields and power infrastructure might severely hurt the atmosphere within the Persian Gulf and the broader area. Burning oil services and power installations might have long-term environmental penalties.

Contemplating all these elements, the earlier this struggle ends with a sustainable answer, the higher it is going to be for everybody—each within the area and globally.

Even European international locations must be very involved. This case may be very completely different from Syria. Iran has a inhabitants of round 90 million folks. If instability escalates, massive waves of refugees might transfer towards Europe or neighboring areas.

We already understand how delicate the political scenario in Europe is concerning migration and refugees, particularly with the rise of right-wing political events. For all these causes, it’s within the curiosity of everybody concerned to maneuver towards a ceasefire and set up a sustainable peace.

There are a number of projections about oil costs proper now. Some analysts say crude might attain $150 and even $200 per barrel if the battle escalates. Do you see oil costs rising to these ranges?

I can not say that. I can not predict the oil market or oil costs. As you realize, oil costs are a operate of many various elements.

One aspect, for instance, has been the management of Venezuelan oil, which has lowered some considerations on the American aspect. However how a lot oil costs will enhance—which they’re already doing—and whether or not they are going to attain the degrees you talked about relies upon largely on the size and enlargement of the battle and the way lengthy it lasts.

One other issue is the supply of different suppliers. As I mentioned earlier, if the Strait of Hormuz is efficiently closed by the Iranian army for a chronic interval, that will positively end in a extra extreme provide deficit.

Different power suppliers additionally matter. For instance, Russia is already below sanctions from Europe and a number of other different international locations. Due to these sanctions, it will not be simple for Russian provides to completely compensate for any deficit within the world market—except Europe decides to partially elevate these sanctions. There have been some discussions and hypothesis about this on social media and different platforms.

So predicting oil costs in such circumstances is extraordinarily troublesome. What we will do is barely speculate concerning the elements that would push costs increased.

These embrace the supply of different oil provides and the way successfully Iranian army forces would possibly disrupt these provides—particularly these coming from Saudi Arabia and different GCC oil exporters within the Persian Gulf.

International locations like India, China, Japan, and South Korea rely closely on oil shipments by way of the Strait of Hormuz. Wouldn’t it be truthful to say that Asian economies might turn into the most important casualties if the disruption continues?

Sure, these international locations rely closely on imported oil from the Persian Gulf, particularly China. Any disruption in provide and better power costs will injury their economies.

Increased oil and power costs cut back financial progress. If financial progress slows in these international locations, the results shall be felt globally. For instance, when China’s financial progress declines, many different economies which might be straight or not directly linked to China are additionally affected.

So your assumption will not be improper. These international locations will even not directly pay the price of this struggle.

As I discussed earlier, as soon as a struggle begins, the prices should not restricted to the direct targets of the battle. In a globalized financial system, virtually everybody ultimately suffers the results.

After all, there are some sectors that will profit, such because the army trade and weapons producers. They might emerge because the winners of such conflicts. However extraordinary folks—those that had nothing to do with the selections that led to the struggle—are those who finally really feel its financial price.

Folks expertise this most straight after they go to fill gasoline of their automobiles and see the worth of gasoline rising. Even when somebody will not be following the struggle within the Center East, they are going to really feel its results by way of increased power costs—whether or not they stay in Berlin, Hamburg, or elsewhere in Europe.

In a globalized financial system, it’s virtually unattainable to isolate your self from the results of a struggle in such an vital power area. The Strait of Hormuz is likely one of the most important chokepoints in world power commerce.

Previously, the concept that Iran might shut the Strait of Hormuz was largely theoretical. It was thought of a final resort. However now we see that it has been used very early within the battle due to the severity of the dangers that Iran believes it faces.

From the Iranian perspective, that is an existential struggle for the political institution. If Iran can not contain different international locations within the battle or impose financial prices on them, it should have little leverage to strain america to cease the struggle.

In the end, the struggle will possible finish solely when the US administration decides that it ought to finish. We noticed one thing related in June 2025 when Israel attacked Iran, and the ceasefire ultimately got here after strain from President Trump.

From the Iranian perspective, the purpose is to create sufficient strain in order that the US administration concludes that persevering with the struggle is not going to obtain its goal of regime change and will as an alternative create home political dangers for the administration itself.

That could possibly be the second once we lastly see an finish to this bloody struggle.

President Donald Trump has mentioned that the US Navy might escort business vessels by way of the Strait of Hormuz to guard them from potential Iranian assaults. Do you assume this might reassure markets and cut back considerations about disruptions within the Strait?

Under no circumstances. The truth is, I feel that’s precisely what the Iranian army forces could also be ready for.

So long as Iran’s ballistic missile capabilities stay operational, escorting vessels with the US Navy might really make them simpler targets for Iranian forces. In that sense, Iran would possibly even be ready for such a situation.

Due to this fact, I might not see this as an actual aid for different international locations that depend on the Strait of Hormuz.

If america believed this was an efficient answer, it in all probability would have applied it a lot earlier. They weren’t ready for such discussions to start now.

That implies the US can also be conscious of the numerous challenges concerned in making an attempt to safe oil shipments by way of the Strait of Hormuz below these circumstances.

So long as Iran retains the potential to strike in that space, escorting ships by way of the Strait would stay extraordinarily dangerous. I might not say it’s unattainable for the US to aim it, however it will actually carry substantial dangers.

Given Iran’s financial vulnerabilities and years of sanctions, can it realistically maintain a chronic confrontation with america and Israel if the battle escalates additional?

If we’re trying on the long-term perspective for the nation and the prices it will impose on future generations, that could be a severe concern. Nonetheless, within the brief and medium time period, Iran can nonetheless allocate extra sources to maintain the struggle effort.

However that will come at a price. Different sectors akin to training and healthcare would turn into underfunded. It is very important do not forget that sanctions had already weakened these sectors even earlier than the struggle started.

So it will create a really massive alternative price for Iran to be concerned on this struggle—an pointless struggle not solely from the Iranian perspective but in addition from the worldwide perspective, and even from the American perspective.

Financially, Iran can handle within the brief time period, however this may come on the expense of welfare losses for the Iranian inhabitants.

For that motive, Iran seems to consider that different international locations within the area must also bear among the prices of this battle. If the financial burden spreads throughout the area, these international locations may also push for ending the struggle as rapidly as doable.

That’s one motive why the battle has progressively taken on a extra regional dimension.

On the identical time, sources should not limitless, particularly when Iran is confronting two highly effective actors—america and Israel. These international locations have far higher monetary, technological, army, and political sources, together with vital worldwide help, significantly from Western international locations.

There are additionally different international locations offering logistical help to those operations.

So based mostly on a easy calculation of sources, it will be very troublesome for Iran to maintain such a battle in the long run. Brief-term resistance is feasible, nevertheless it comes with a serious alternative price and vital welfare losses for Iran.

Nonetheless, from the angle of the Iranian institution, this struggle is seen as existential. Due to that notion, they could be prepared to bear these prices for now with out focusing an excessive amount of on the long-term penalties.

These long-term prices will possible fall on future generations, who must rebuild the financial system and reconstruct the nation after the destruction.

So the brief reply to your query is sure—it’s possible for Iran to proceed this struggle within the brief time period. However in the long run, its choices will turn into way more restricted.

If tensions escalate additional, might this battle set off the most important world power shock because the 1973 oil disaster?

Nicely, sure and no—perhaps.

Sure, within the sense that we’re witnessing a struggle imposed on a rustic of Iran’s dimension in a area that’s central to world power markets. The battle has already taken on regional dimensions, partly as a result of Iran has the army functionality—particularly its ballistic missile capability—to broaden the struggle throughout the area. Iran invested closely in these capabilities after the Iran-Iraq Battle, realizing that they have been important for its protection technique.

From that perspective, the shock to power markets could possibly be vital.

Nonetheless, the worldwide financial system at the moment may be very completely different from what it was in the course of the 1973 oil disaster. Over the many years, economies have turn into extra environment friendly of their use of power. Different power sources have additionally expanded. Renewable power—akin to wind and photo voltaic—has grown considerably, particularly in Western international locations.

Due to this, world dependence on fossil fuels could also be considerably decrease in comparison with the interval you talked about. That might enhance the resilience of the worldwide financial system to some extent.

Many issues have modified. On one aspect, the shock might nonetheless be vital when it comes to disruptions to power provide and elevated dangers to power infrastructure and funding.

On the opposite aspect, power customers and importing international locations have additionally tailored. Power effectivity has improved, the power depth of manufacturing has declined, and investments in renewable power have elevated—particularly after the Russia–Ukraine struggle.

That battle pushed many Western international locations to rethink their dependence on fossil fuels and power provides from geopolitically delicate areas.

So all these elements should be thought of when assessing whether or not the present shock could possibly be similar to the one skilled in the course of the 1973 disaster.

Lastly, trying forward, how do you see this battle evolving? Do you count on any de-escalation, or is the scenario prone to intensify additional?

It largely is determined by what america plans to do subsequent in Iran.

If the reviews we’re listening to—that the CIA is in touch with separatist teams in Iran—are correct and if there’s a severe effort to mobilize opposition forces and ethnic minorities in opposition to the Iranian authorities in an organized manner, then the scenario might evolve into a totally completely different situation.

That might probably flip Iran into one thing much like what we’ve got seen in Syria or Libya. Such an end result wouldn’t be within the curiosity of the Center East in any respect. It will introduce long-term instability into the area and create a really completely different image for the approaching months and years.

We have already got actual examples of such conditions within the area—in Iraq, Libya, Syria, and Afghanistan. If one thing related have been to occur in Iran, it will possible be the worst doable situation not just for Iran however for your complete area. It might result in refugee crises, financial disruptions, and extended instability.

Alternatively, if the struggle ends and we see a extra average management emerge in Iran—one that’s prepared to open up society and pursue reforms—that will create a really completely different future for each Iran and the area.

Nonetheless, I’m not very optimistic that Iran will transfer in that course, given the experiences it’s going by way of proper now.

If the present political system stays intact and regime change doesn’t happen, the Iranian authorities will possible reassess their protection and army methods. Points akin to nuclear functionality might turn into much more pressing from their perspective after experiencing this stage of destruction.

We might also see Iran deepen its strategic alignment with international locations akin to China and Russia and rely extra closely on them in a number of areas.

On the identical time, the prospects for home reform might weaken. Sanctions had already weakened Iran’s center class, and this struggle is prone to injury it even additional. The center class is usually the social group that drives reforms, so weakening it reduces the probability of significant reform sooner or later.

In that sense, I’m not very optimistic about reformist forces changing into stronger after this battle.

The worst-case situation for Iran could be a civil struggle. Iran is a multi-ethnic nation, and below sure circumstances, ethnic tensions might turn into a severe difficulty.

So long as there’s a robust central authorities controlling the borders and sustaining order, these tensions stay contained. But when exterior actors start supporting, funding, or arming ethnic opposition teams whereas army assaults are ongoing, the chance of inner battle turns into very actual somewhat than theoretical.

If that occurs, Iran could possibly be locked into a few years of violence and instability. Such a scenario would halt the nation’s improvement and destabilise your complete area.

After all, in such a situation Iran would possibly not be seen as a strategic menace to Israel. However the important thing query is what america finally needs from Iran. The aims of america and Israel could not essentially be the identical in relation to the way forward for Iran.

What do you assume Israel finally needs from this battle with Iran?

Israel will not be essentially fascinated with a powerful Iran. By “robust,” I imply a rustic with vital army, financial, and political energy and robust regional affect. So long as Iran has not normalized its relationship with Israel, such power is seen as a menace.

Even in the course of the Pahlavi period earlier than the Iranian Revolution, when Iran had relations with Israel, there was nonetheless competitors between the 2 international locations. For instance, when the Shah sought superior weapons know-how from america, Israeli officers weren’t significantly proud of that shut army collaboration.

For Israel, sustaining army hegemony within the area is extraordinarily vital. Any drive that challenges that dominance is seen as a possible threat or menace.

From that perspective, a considerably weakened Iran—whatever the price paid by the Iranian inhabitants—could be seen as preferable. Israel could desire an Iran that’s weakened and controllable, a rustic that could possibly be restrained at any time when vital.

Nonetheless, the angle of different main powers could also be completely different. International locations like america, China, and different massive financial actors usually desire a steady Center East. Stability permits them to spend money on the area, safe power provides, and broaden financial cooperation.

At this time we’re additionally speaking about massive investments in areas akin to synthetic intelligence and superior applied sciences. The Gulf area, with its comparatively low cost power, robust monetary sources, and expert workforce, has turn into engaging for such investments.

President Trump, for instance, visited the area not too long ago to debate main AI investments. However these sorts of investments require stability. You can’t construct massive technological or financial initiatives when airports, ports, or industrial services are below assault.

For that motive, stability within the area is extraordinarily vital for a lot of world financial actors.

For them, a steady Center East with a comparatively cooperative or Western-friendly authorities in Iran—and with Iran’s territorial integrity preserved—could also be the popular end result.

Nonetheless, among the alerts we see within the media don’t essentially level clearly in that course. So for now, we’ve got to attend and see how the scenario develops.