Stephen Martin's Shortform

Stephen Martin

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I am struggling to build a solid mental model of how bad the situation with Iran and the Strait of Hormuz is.

On the one hand I see a lot of smart people basically saying this is going to usher in a global depression, energy/food crisis, etc. Critical infrastructure for manufacturing aluminum, helium, as well as refining and shipping energy, has been damaged and cannot simply be switched 'back on'. And the case does seem to make sense.
On the other hand while markets are in turmoil, they're not reacting like there's going to be mass blackouts and starvation.

And previously I updated my mental model towards the world being less fragile than I thought, when during COVID we shut down the entire global economy and things didn't collapse. During that time I thought there were a lot of very rational cases for why the economy/financial system simply couldn't handle such a thing, yet it did.

I'd like to hear what people on LW think.

On a private forum, I just listed possible outcomes and probabilities as:

US leaves Persian Gulf and Eurasian powers work with Iran to establish new economic and security order there, 10%
Islamic Republic falls and is followed by new Eurasian democracy crusade ultimately aimed at Russia and China, 60%
Regime falls but no broader democracy crusade OR regime stays but strait is reopened, 30% combined

These are political scenarios and you're asking about economics. My intuition is that there could be a world recession but not a world depression.

Stephen Martin's Shortform

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Stephen Martin's Shortform

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