Splinter: Trump Has Bet the Economy on War With Iran

There are of course, a million different horrors to focus on in America’s latest quagmire in the Middle East, and the economy is not more paramount than the immediate threat to the lives of people across the region like Splinter writer Roqayah Chamseddine, now living under fire from Israeli rockets in Beirut yet again. We are all worried about nearly half a billion people in the region amidst an outbreak of violence driven by the world’s two most prominent criminal states, and I don’t want to dismiss the very real immediate headline from Trump and Israel’s war in Iran which is that people will die.

But people die because of economic crashes too. This danger that has arisen is its own kind of serious concern. The Great Depression is not called that because of a stock market crash in 1929, but because the unemployment rate soon rose as high as 25% and suicides go up during recessions. Trump has unleashed immense danger upon the world in many different forms, and the message from debt markets today is unambiguous.

Bonds are no port in this storm, as inflation fears intensify

“We are seeing bonds again failing to provide protection against risk-off events, even as gold delivers,” said one HF investor

www.ft.com/content/b4ad…

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— Ian Smith (@iankmsmith.ft.com) March 2, 2026 at 9:25 AM

A lot of the focus today is on the depraved stock market being flat to slightly up as I write this (it turned slightly down later in the day), but this is a perfect example of how our stock market-brained media is horrible at telling you what really is going on. The stock market has been rattled recently by fears that AI spending is way out over its skis, and the market has pulled back in the face of new multi-billion dollar data center spending announcements by Google and Amazon in recent weeks. There is an entire multi-year separate AI narrative which has entered a new phase that is radiating serious fears throughout software stocks, and you cannot look at today’s market reaction solely as a referendum on Trump and Israel’s war with Iran. Four of the magnificent seven stocks that largely drive the market are up today, with Nvidia, the only stock that matters, up around 3% as I write this. Most of the rest of my watchlist of the largest stocks is in the red. You won’t get much useful information out of stocks today.

But bonds, boring as they are, affect you and me far more than whatever AI hypebeasts are doing on any given day. Bonds are the cost of borrowing, and interest rates reflect broader inflation risk. If bonds are selling off, that means investors are demanding a higher yield in order to justify the risk of loaning a criminal enterprise money, and you and I are going to pay for it with higher interest rates on our loans, credit cards and mortgages.

The main reason why bond yields are up today is because going to war with an oil-rich country has shot up oil prices. Who could have ever seen this coming! The general rule is that a sustained 10% rise in oil prices translates to about a half a percentage point rise in inflation and a 0.1% to 0.2% reduction in GDP growth (Fed Chair Jerome Powell said in 2022 that every $10 rise in oil prices is about a 0.2% increase in inflation and a 0.1% hit to growth). After rising as high as 11% today, oil prices pulled back to around being up 5% before rising to up over 8% as I finished writing this after Iran announced they closed the Strait of Hormuz, one of the globe’s major oil shipping lanes. That pressure receding is why stocks floated up and they fell back down after it returned. There are a lot of mechanical fluctuations in bonds, currencies and commodities that affect stocks, and any focus solely on the stock market is useless for anyone trying to understand the broader forces in the economy right now.

And the broader forces are: flat to declining job growth in the United States during the second half of the year, the longest government shutdown ever helping to cut GDP growth in the 4th quarter, and subtle but observable inflationary pressures taking root in pockets of the economy thanks to rising energy prices and Trump’s tariffs adding a domestic tax on everything imported into America. Add the AI bubble popping shivers that the stock market has been having the last few weeks, and it is already a worrisome status quo on its own. The math on just a serious stock market pullback is harrowing–a dot com-level bust would lead to $35 trillion in global wealth destruction, according to the former chief economist of the IMF. It’s just a very bad time to potentially add sustained high oil prices to a situation where veterans of the last financial crisis are warning us that we are “complacent” about the next one.

PEOPLE ARE COMPLACENT ABOUT RISK OF FINANCIAL CRISIS, SAYS LLOYD BLANKFEIN-FT

— FinTwitter (@fintwitter.bsky.social) March 1, 2026 at 10:09 PM

Trump has bet that he can go to war with a country already willing to strike oil tankers in the Strait of Hormuz, shut it down and plunge shipping volume through a channel that 20% of the global oil supply passes through, and not have this oil supply shock lead to a sustained rise in oil prices. Unfortunately, in this world that is set up to let the bad guys win, it is too hard to blame president sundown’s melting brain for thinking this way because one of the major narratives last year was the surprising strength of the American economy in the face of his attempts to wreck it.

But oil is a different ballgame than hammering away with an inflationary mallet at the greatest economic engine that mankind has ever built, and as Iran has already demonstrated, this is where he has far less control over managing the harmful outcomes of his actions. The main thing that Trumpists forget in every situation is that your enemy gets a vote too. Yet again, the American people are likely going to have to pick up the tab on Trump’s belligerence.

Gas prices up by around 50% today.

A painful reminder that relying on imported fossil fuels is a risky strategy.

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— Jan Rosenow (@janrosenow.bsky.social) March 2, 2026 at 8:03 AM

The key word in that general rule of thumb for oil-driven inflation is “sustained,” and one day of war shock to markets doesn’t mean much on its own. The roughly 40% spike in oil prices after Russia invaded Ukraine in 2022 got sold off in five days, and after a couple more rises in oil prices through June, they declined nearly 40% by October 2022, reaching prices that we hadn’t seen since 2021. Trump can’t sustain his attention on anything for more than five seconds, going off on a rant about White House ballroom drapes today during a ceremony for Medal of Honor recipients, so it’s anyone’s guess how long this lasts.

But I do think that this is fundamentally different from his and Israel’s previous attack on Iran. By turning Ayatollah Ali Khamenei and countless other members of Iranian leadership into martyrs for the cause and presenting a truly existential challenge to the Iranian Revolutionary Guard Corps, Trump and Israel have narrowed their most effective counters down to various kinds of warfare. Diplomacy is very obviously a sham in two countries run by autocrats trying to claim territory that isn’t theirs, and there is very little reason for the remaining Iranian leadership to come to the negotiating table and trust Jared fucking Kushner now. Given the sober announcements by Trump and his Chairman of the Joint Chiefs of Staff admitting more Americans will likely die in the coming weeks, just two days into this mess, it is already taking the picture of a contest among three morally rudderless regimes to see which countries can withstand more pain. 

It seems clear now that Israel’s longtime plan to decapitate Iranian leadership is just to plunge a country of 93 million people into chaos, because the kind of regime change Israel demands requires an immense boots on the ground operation that their Podunk little army built to fight wars against unarmed civilians is fundamentally incapable of achieving, which is why they have always tried to find some mark in America to do their dirty work for them. Luckily for this genocidal apartheid state created in the US and UK’s image, the American people elected the perfect patsy, and now we may find ourselves mired in a conflict we can start but cannot end without another Iraq War-style commitment trapping us in bloodshed for a decade or more.

The oil shock of the 1970s was one of the big catalysts that accelerated that stagflationary malaise, and an oil shock is the only thing that Trump hasn’t tried so far in his bid to speedrun all the worst ideas of a period where the misery index reached all-time highs. One day does not make a trend, but it’s clear that Iran is willing to weaponize oil prices against us for now, and if we see a sustained rise in energy prices, Trump may get his ultimate wish to take America back to the early 1980s, Volcker shock and all.