The American-Israeli attack on Iran and the violent response are creating new uncertainties in the global economy – on top of the mess already existing. Events are unfolding rapidly and we do not claim to be experts on Mid-Eastern politics. But some points can be made already now.

• The fall-out will be largely dependent on the length of the conflict. Donald Trump is talking about a month, but obviously nobody knows. What we do know, however, is that Iran has retaliated in a way that escalates the conflict – which is not what happened last year. They have hit American vessels and other Gulf states. This indicates a lot more violence will come.
• Furthermore, we do not know what kind of succession will come after Khamenei, whether the hard-liners will stay in control or more moderate leaders will take over. As of now, we do not see any quick or easy shift to a modern or democratic government. The hard-liners are likely to rule for the foreseeable future – but they may appoint someone with a slightly softer touch to ease negotiations, if and when such an opportunity arises.
• An obvious risk is that Shia jihadists may want to avenge their dead leader by terrorist attacks on targets in several countries. This could cause further escalation.
• Energy markets initially reacted as could be expected. Gas prices increased by more than 20 per cent, oil just below 10. As much as one fifth of global oil shipments go through the Strait of Hormuz, meaning markets are not pricing a total blockade. If the strait is blocked, prices will rise considerably more.
• Inflation will rise, depending on how high fossil prices go. A rule of thumb is that 5 per cent oil price rise pushes inflation in developed markets up by 0.1 per cent. The effect is stronger in Europe since the continent is more dependent ng gas imports. For a noticeable bump in inflation, oil prices need to move much more than they have done so far.
• Central banks will probably keep their calm, preferring to view possible inflationary effects as temporary. The US is more sensitive since markets have been pricing more cuts there than in most other developed countries. As for Sweden, uncertainty about energy prices and the currency will make the Riksbank less prone to cut the key rate.
• Effects on financial markets have so far been limited, since markets already had factored in some kind of military attack. Bond yields may move slightly higher. USD strengthens, partly because US is a net oil exporter and partly because the dollar will retain its position as a safe haven in times of war. The NOK will gain, effects on SEK are unclear.
• Equity markets in general react negatively. Stock market value of growth companies who are sensitive to energy costs and interest rates may suffer somewhat.
• Geopolitically China loses, since Iran was a valuable oil partner. Russia may actually gain, since price increases on fossil fuels boost its export coffers.
• But once again: the important long-term effects depend on how long the war will last and on what kind of government will emerge in Iran – issues which are beyond our competence to evaluate.

Continued tariff circus and stock market volatility
At the same time the Trump tariff circus continues, full speed. After the U.S. Supreme Court declared Trump’s reciprocal tariffs illegal, he struck with new tariffs of 10-15 percent. That means tariff cuts for the countries he previously wanted to punish, such as China, Brazil and India, but hikes for allies who previously thought they had negotiated good terms, including Britain. Once again, we have learned that a deal with Trump is highly unreliable.

We do not know whether these new tariffs are legal, or how long they will be in force. Nor whether companies can receive restitution for losses. Trump threatens with "draconian" new measures if he does not get his way. The uncertainty surrounding the trade war thus remains. Both companies and nations are likely to continue to minimize damage by redirecting trade and investment flows.

At the same time, a stock market rotation is underway, out of some leading American tech companies, as well as from software companies that may find it difficult to cope with the competition against new AI agents. Instead, investors are entering value companies and stock exchanges outside the United States. Volatility has been high, which illustrates the uncertainty.

We have warned of black and grey swans in uncertain times for some time. During the past month, the new war in the Mid-East and the full-fledged mess in trade policy have shown that our fears were well-founded. As a result, we stick to our guns which means investing in mid-sized value equity and investment-grade bonds, as we have in recent months. In risky times like this, a prudent strategy is preferable indeed.