The past seven years have not been kind to the global economy. Of course, there has been innovation, promise and growth in some sectors, but many economists have highlighted key global events as major disruptors of global trade activity and supply chains in recent times. 

Are we now in for a period of stagflation? Polifi attempts to take a look at the economy through recent global events and the risks posed by the Iran war.

It is not hard to guess where the ‘new normal’ of supply shocks and sudden changes started in the past decade. Covid-19. Lockdowns, the changing nature of shopping, the challenges in global trade and the evolution of work all came hand in hand with the global pandemic. The effects on trade, much like the pandemic itself, transcended international borders. The higher cost of raw materials, alongside border closures and the increased cost of freight services, led to increased prices and shortages.

Two years passed, and just as the world was slowly reverting back to factory settings, the Russia-Ukraine war began. With that, came the energy shock in the European Union. Europe had already been coming to terms with a looming energy crisis before the war began, and things only got worse after. The vacuum left behind from Russian gas was costly, and it also needed investment and time to be replaced with substitute energy sources. And then of course, there were the billions that went into the war itself. Altogether, this is not the best environment to encourage growth in non-conflict related industries. The European Commission has identified lower-than-forecasted growth, inflationary shocks and the need to relocate the conflict-displaced Ukrainians as issues for the EU to grapple with as a direct result of the conflict.

As if all of this was not enough, in 2025, came President Trump’s tariff war. While it was stated to be designed as an answer to China’s increasing dominance in global trade, what it ended up doing was to disrupt it for all of US’ allies and make them question the traditional alliance paradigm. It also drove up prices once more for the average consumer across many commodities. The cost of living for citizens in the US alone is estimated to have increased by over $1000 since the tariffs were implemented last year.

Another major issue right now is the major tech disruption currently taking place. Artificial Intelligence (AI) has led to the creation of an entirely new and gigantic industry. NVIDIA’s stock numbers over the past few years and the valuations of AI companies right now tell you all you need to know about the kind of money being spent on AI. 

Even if a company is not part of the AI industry itself, businesses right now are grappling with whether or not to use AI and in what capacity. Some companies have gone all in on the craze and have laid off thousands of employees in the process. Others are seeing entire business models wiped out because products are made redundant with the use of AI. Tech companies have gone all in on the wave and have laid off thousands in a bid to automate workflows and do more with less.

Whether or not AI is a bubble is irrelevant. What is clear is that if you look at the changing nature of technology and juxtapose it with all of the other issues confronting global production and employment, a lot of things are changing rapidly and simultaneously, and states must look to insulate their populations where they can to prevent them from bearing the brunt of this change.

With the conflict in Iran now heating up, there is a very high chance that the effects of this will have lasting negative effects on the global economy. The International Energy Agency (IEA) has already dubbed the Iran war the largest global oil supply disruption since the energy crisis of the 1970s. The immediate rise of crude oil prices to $82 once the missiles started falling all over the Gulf region is an indication of just how vulnerable the global oil supply chain is. 

It depends on who we are talking to when answering this question, because it can vary by the country, region and type of economy in question. But even for a country like China, which manages to meet a lot of its domestic demand through homegrown supply, stagflation might be a risk. While numbers coming out of China cannot always be taken at face value, layoffs via economic slowdown and the increase of AI-based automation have led to jobs being cut. If the state does not encourage growth or try to control the rise in the cost of production, more tough times lie ahead.

In a country like the US or some economies in the European Union, the risk is even greater. Countries that are already facing higher numbers in unemployment now face rapidly increasing prices with the burden of this rise shifted entirely onto the final consumer. If households no longer have disposable incomes because of the lack of jobs, they will simply be priced out of buying goods and services that they previously used to. Budgets will be cut, expenses slashed, and this will only further slow down the economy. 

The most obvious fix is an end to the conflicts and issues that are causing prices to spike, but it is not that simple. Even if the Russia-Ukraine war were to stop today, there is still an energy issue in the EU. In the case of tariffs, it is not as if corporations will start lowering their prices even if all tariffs from global trade are lifted immediately. If the Iran war stops today, the prices of oil might go back to stable levels, but again, that does not solve any of the other exigent problems the global economy is confronting today.

Policymakers have to step in and be proactive. Is universal basic income or greater investment in welfare systems the answer? Perhaps. 

Governments across the world have to ensure that citizens are not being left behind with income gaps widening in these times of conflict and seismic change. But so far, all we see from states is poor foreign policy with a lasting impact on global commerce.