3rd June 2026
Three weeks ago, I warned that the war involving Iran could trigger a seven-stage economic crisis. Today, I think that risk is much greater than it was then.
The reason is simple. We are no longer looking at a threat to one global trade route. We are potentially looking at threats to two of the most important trade routes in the world at the same time.
Iran is now signalling its intention to close the Strait of Hormuz. At the same time, disruption in the Red Sea could make access to the Suez Canal effectively impossible. Together, these routes are critical to global energy supplies and world trade. A significant proportion of the world’s oil passes through Hormuz, whilst the Suez route is one of the key arteries linking Europe, Asia and the Middle East. If both are disrupted, the consequences will be felt everywhere.
In this video, I explain why these situations change everything. As a result, I revisit the seven stages of economic meltdown that I outlined previously and explain why events are now moving in exactly the direction that analysis suggested. Rising oil prices are only the beginning. Fuel shortages, supply chain breakdowns, food price inflation, business failures and a banking crisis could all follow.
I also explain why central banks are likely to make matters worse. Faced with rising prices, they may once again reach for higher interest rates even though inflation would be caused by shortages and disrupted supply chains, not excessive consumer demand. That mistake could deepen the crisis and accelerate the recession we face.
My concern is not simply that a crisis might happen. My concern is that it may already have begun. Markets are reacting. Commodity prices are rising. Diplomatic efforts are failing. The warning signs are becoming harder to ignore by the day.
Read the full video transcript HERE
Lets take a closer look at the assumptions in Richard Murphy's article.
The short answer is: Richard Murphy's seven-stage scenario is plausible as a risk pathway, but it should not be treated as a forecast that is likely to happen exactly as described.
Murphy's argument is essentially that a prolonged disruption in the Strait of Hormuz could trigger a chain reaction:
Energy shortages and higher oil prices.
Rising inflation.
Central banks keeping interest rates higher.
Supply-chain disruption.
Business failures.
Financial stress.
A banking and economic crisis.
From an economist's perspective, the logic linking the stages is broadly sound. History shows that major oil shocks can indeed feed through into inflation, recession and financial instability. The oil crises of 1973-74 and 1979 are classic examples. Murphy is not inventing an impossible mechanism.
However, there are several reasons to be cautious about his conclusion:
1. The world economy is less oil-dependent than it was
Modern economies use less oil per unit of GDP than they did in the 1970s. Energy efficiency has improved, and economies are more service-based. A given rise in oil prices tends to have a smaller impact than it once did.
2. There are buffers
Murphy argues that inventories will run down and shortages will emerge. That is possible in a prolonged disruption, but governments hold strategic petroleum reserves and producers outside the Gulf can increase output to some extent. These buffers are designed precisely to prevent an immediate economic collapse.
3. Markets adapt
One of Murphy's recurring assumptions is that governments and markets will respond poorly. Sometimes they do. But businesses also adapt surprisingly quickly by changing suppliers, transport routes and production patterns. Economic systems are often more resilient than they appear at first glance.
4. Banking crises require additional triggers
The weakest part of the chain is arguably the jump from recession and business failures to a banking crisis "bigger than 2008". Modern banks are generally better capitalised than they were before the Global Financial Crisis. A severe recession does not automatically become a systemic banking collapse.
5. Murphy tends toward worst-case scenarios
Murphy has often been ahead of mainstream economists on some issues, but he is also known for presenting downside risks forcefully. His writing is valuable because it highlights dangers that others may dismiss, but critics would say he sometimes underestimates the capacity of institutions and markets to absorb shocks.
A Scottish perspective
For Scotland, the effects would be mixed:
Higher petrol, diesel and heating costs.
Higher food prices because transport becomes more expensive.
Pressure on household budgets and public finances.
Potential benefits for North Sea producers if oil prices remain elevated.
Renewed interest in domestic renewable energy and energy security.
So even if Murphy's full seven-stage meltdown does not occur, Scotland would still feel the impact of a prolonged Gulf disruption.
Assigning probabilities:
Higher inflation and slower growth: quite plausible.
A recession in some countries: plausible.
Significant supply-chain disruption: possible.
A global economic meltdown by Christmas: possible but far from certain.
A banking crisis worse than 2008: currently looks the least convincing part of the argument.
In other words, Murphy's article is best read as a stress-test scenario—"what could happen if several things go wrong in sequence"—rather than as a prediction that the seven stages will inevitably unfold. The causal chain makes economic sense, but each stage depends on the previous one occurring with sufficient severity, and there are many opportunities for governments, central banks, producers and markets to interrupt that chain.
Down To The Basics
Reduce debts
Pay down loans and credit cards
Keep food stocks built up
Conserve energy to reduce bills
Questions
Can you survive without heating oil? - our grandparents did.
Can you grow vegetables in your garden to save cash.
Energy prices go up on 1 July and again 1 October so how many more increases are coming - have you calculated your budget.
Get mentally prepared - its not the end of the world - just maybe more expensive if there are shortages coming - things may be scarcer if fertiliser prices keep rising and farmers plant less.
This is real economics as most of us have not seen in a long time - Do what you can to be ready.