Editorial: Collateral damage of the Iran war

The human cost of modern wars is constantly being projected on our screens. The Iran war is no exception. The international media zooms in on the many people killed in the destruction and the stories of the thousands wounded or displaced from their homes.

Other consequences of this war are slowly but surely emerging and will eventually impact all of us through the economic collateral damage of global conflicts.

Rising inflation is arguably the most serious risk governments must manage as global trade continues to face formidable challenges.

Just a few years after COVID, global trade has had to deal with the trade war declared by US President Donald Trump against most countries he deemed fit and now we have seen two US military incursions against Iran in the space of just nine months.

There are similarities between the high inflation the world faced during and just after COVID and the inflation we face today. This is not the kind of

inflation that central banks can try to control by raising interest rates. It is the kind of inflation driven by disruptions in the supply chains of manufactured goods, agricultural products and energy products.

Local electronic retailers say they are already facing higher prices because of rising shipping costs and, in some cases, manufacturing costs that have risen by 10 to 20 per cent. 

In times like these, some retailers will resort to price gouging while blaming events beyond their control, such as the hoarding of semiconductors, energy and metals by global mega manufacturers profiteering from the AI boom. 

One can only hope that consumers will not have to face the same challenges like the COVID years when buying manufactured goods and, more importantly, essentials like food and medicines.

Ironically, there could be a silver lining in this terrible war for small countries like Malta, which has a strong financial services industry.

Finance Minister Clyde Caruana argues that Malta could be on the radar of wealthy people who are not looking to move to a tax haven but, rather, to a reputable jurisdiction where they can manage their wealth in peace. Of course, other reputable financial services hubs like Singapore and Switzerland are keen to position themselves as the natural havens for money fleeing Dubai due to the disruption caused by the Iran war.

For years, Dubai was often described as the ‘Switzerland of the East’ because of its political stability, luxury lifestyle and investor-friendly policies. Russian oligarchs, Indian industrialists, European entrepreneurs and crypto billionaires all chose it as their base precisely because it felt insulated from regional instability.

However, the surprise and illegal US/Israeli attack of Iran is leaving the Gulf states in disarray.

As a result, several wealthy individuals are looking for safer financial destinations for their assets.

While the end of the Iran war is still shrouded in uncertainty, the collateral economic damage will affect ordinary people for many months, if not years. When prices rise during a crisis, they rarely return to their pre-crisis levels. Malta’s open economy is especially vulnerable to imported inflation that ultimately affects everyone’s well-being.

While Malta and other small, stable jurisdictions may temporarily benefit from capital seeking safety, this should not create a false sense of insulation. In an interconnected global economy, no country is truly shielded from the ripple effects of conflict.

Policymakers must remain vigilant, ensuring that markets function fairly while actively seeking new trade partners and alternative supply routes to mitigate shortages. Stability cannot be taken for granted.