The world is once again gripped by anxiety.
The ceasefire understanding between the United States and Iran has collapsed, raising fears that the situation could once again develop into a full-scale war. Many worry that another conflict could spiral out of control.
US President Donald Trump announced that the ceasefire understanding had broken down. However, since he is not reluctant to change his position, there is no need to become overly anxious based on his words alone. By now, most people have gradually come to recognise this.
All sides want to avoid a war. Only a few hardliners in Iran and Israel appear determined to pursue one. That is why markets settled down after the initial shock and stock indices began to rise.
This does not mean that the Iran issue will cause no further problems. In fact, the opposite is more likely. Tensions may rise and fall several times, but markets could still avoid a major collapse. Put simply, markets will learn to live with the conflict, just as they have with the Russia-Ukraine war that began in 2022.
Similar fears had emerged when the United States and Israel jointly attacked Iran.
Despite these developments, the world is not suffering as it did during earlier periods of conflict.
Stock markets in the United States, Japan and South Korea have reached record highs. Japan’s exports rose 17 per cent in May, the strongest growth in four years. Exports to China increased 19.4 per cent, those to South Korea 53.2 per cent and those to Taiwan 51.7 per cent.
India’s exports, including services, increased 15.83 per cent.
Economic growth has also remained strong in several countries. During the January-March quarter, China grew 5 per cent, South Korea 3.6 per cent, the United States 2 per cent, the European Union 0.8 per cent and the United Kingdom 1 per cent.
Even as layoffs linked to artificial intelligence increased, the United States continued to add jobs. It added 185,000 jobs in March, 115,000 in April and 172,000 in May.
The International Monetary Fund expects the global economy to grow by around 3 per cent this year.
Countries with high energy consumption maintain substantial fuel reserves.
China has crude oil stocks sufficient for 100 days of consumption. Japan and South Korea have reserves for 200 days, while the European Union has stocks covering 130 days.
The United States, one of the world’s largest crude oil producers, has reserves equivalent to 74 days of imports. These countries are therefore less concerned about disruptions lasting a few months.
Industrial production processes and machinery have become far more energy-efficient. More can now be produced using less fuel.
In the United States and Europe, producing one dollar of output now requires only about one-third of the energy needed in 2000. In China, the figure is around 40 per cent.
In other words, every litre of fuel delivers substantially more output than it did a quarter of a century ago.
The future belongs to artificial intelligence. Large companies are investing heavily to establish an early lead in the field.
Capital investment in AI this year will exceed investment in the defence manufacturing industry. As companies begin using AI, employee efficiency and the amount of work completed by each individual have increased.
The result is a system in which fewer resources generate greater output.
Fewer workers, better results. The old anxieties about the scarcity of resources have therefore diminished.
Taken together, these developments have allowed economic reality to overcome conventional assumptions. That is what the world is now witnessing and experiencing.
There is another reason why the anxiety surrounding war is lower than it once was. The possibility of other major powers entering the conflict has declined. For the time being, more countries are also unlikely to join attacks against Iran. This reduces the risk of the war spreading.
These changes have reduced the intensity of the economic impact caused by war.
Countries directly involved in conflicts, those supporting them from outside and those remaining neutral have all understood this. That is why war-related inflation has been less severe than during the first and second Gulf wars.
Oil prices more than doubled during those conflicts. This time, the maximum increase was around 50 per cent, while the average increase was about 30 per cent.
If oil prices were to double, economic growth would weaken across the world. If growth slowed while oil remained above $120 a barrel, the result could be stagflation, a situation in which economic stagnation and inflation occur together.
That outcome has been avoided.
The investment lesson is clear. The assumptions and fears of the past are no longer sufficient.
The wars in Ukraine and Iran have changed how we understand military conflicts. Our understanding of their economic consequences must also change. That is why markets have avoided a collapse and continue to remain resilient.
Both sides avoided attacking oil infrastructure, including wells, refineries and pipelines.
Neither side took the self-destructive step of disrupting the world’s oil supply. Unlike during the Kuwait war, no one set oilfields on fire. Nor were there attacks that resulted in oil from tankers being released into the sea.
The Saudi Arabia-led Organization of the Petroleum Exporting Countries, or OPEC, sought to prevent oil prices from rising even if the war continued.
At its ministerial meeting, OPEC approved a proposal to increase production. Output has been raised every month since April. The United Arab Emirates, which had moved away from OPEC, also increased production.