24029 | 12 March 2026 | 17:33
Prof. Dimitar M. Ivanov,
Doctor of Economic Sciences
The war with Iran, despite its complexity and global consequences, comes down to one single question: "Who can endure the pain the longest?". How much longer will this war continue? With each passing day, the news of increasing casualties multiplies, as well as the information about the prices of oil and gas, the difficulties with supplies, and the repeated blockades of trade chains.
But it seems like no one is talking or understanding or even underestimating what this conflict and its development and escalation in the region will bring in economic terms to the whole world, including Bulgaria.
Nearly 107 years ago, just two months after the signing of the peace treaty in Paris on June 28, 1919 at the Versailles peace treaty, John Maynard Keynes, then a young economist, broke out with his negative reactions to this treaty with a brilliant essay of 131 pages, entitled "The Economic Consequences of Peace" (1919). In it, Keynes condemned the Versailles Treaty and predicted downfall if the treaty was implemented. As we know, his predictions unfortunately came true later on. In his Introduction, Keynes emotionally writes:
"Only a few of us realize with conviction the extraordinary, unstable, complex, unreliable and temporary nature...of the economic organization on which Western Europe has lived for the past half century. We take some of the most peculiar and temporary of our late advantages as natural, permanent and reliable and build our plans accordingly." On this sandy and false foundation, we make plans for social improvement and dress up our political platforms, pursuing hostility and our personal ambitions, and feel sufficiently reserved to fuel, rather than calm, the civil conflict within the European family. If we deliberately strive for impoverishment in Europe, I dare to predict that revenge will not be far behind. Then nothing can delay the final civil war between the forces of reaction and the desperate convulsions of revolution, before which the horrors of the last German war will fade away and no matter who is the winner, will destroy the civilization and progress of our generation. Even though our result disappoints us, shouldn't we base our actions on better expectations and believe that the prosperity and happiness of one country encourages those of others, that solidarity between people is not a fiction and that nations can still afford to treat other nations as their brothers?"
Keynes' words still ring true today, although now we speak of a different region, but at the same time, of a highly interdependent economy. War demands, but also destroys capital. And we see this everywhere today - from the USA to the Middle East, and especially in Europe. Stagflationary forces are accumulating around the world, while the price of oil reaches $100. The massive geopolitical tension, the increase in fuel prices (already touching the limit of $100 US dollars) reignites inflation, will disrupt the fragile stabilization of trade supply chains (after COVID) and will hinder growth rates. We have already witnessed the first wave of anti-risk reactions, which rock the global markets, as the intense demand for safety will likely ignite prices of gold and other valuable metals. And here I'm not even addressing what a number of analysts emphasize, that asymmetric wars always have some unforeseen elements that must be taken seriously because even from a military standpoint, this war may not be entirely in favor of the United States and things may not unfold in the same way. The counterreaction of Iran imposes daily increasing expenses and risks for the global economy.
Even if the war ends tomorrow, its economic impact, the ripple effect on the prices of energy materials, on the markets, on trade chains, on government spending, on investors and businesses, on the daily household expenses in many countries around the world will continue for at least a year. And if it doesn't end quickly?
That is why it is extremely important to analyze how far this wave could spread? What will all this mean in financial terms?
The first thing everyone thinks and talks about is the impact on energy. But I must emphasize that this is far from everything. It is even just the visible part of the iceberg.
It is not just about the danger of rising oil and gas prices. This concerns the complex interconnection and logical chain of these prices with all other main macroeconomic indicators, which are deteriorating and which many people, politicians, institutions, and even governments are still not taking into account in their reactions and plans, thus underestimating the complex risks. In the real economy and finances, negative factors are not neutralized, but rather accumulate and always lead to a destabilizing synergistic effect.
Even the partial interruption of the supply of millions of barrels of oil per day and over 100 billion cubic meters of liquefied natural gas annually leads to a shock in supplies of historical proportions. At the moment, the entire Middle East region is on the verge of becoming unstable. Despite market reaction being relatively slow, we are seeing a true correction in the stock market, with continuous disruptions in supply chains for both China and Europe, and a dilemma for major central banks regarding whether to maintain or not their main interest rates.
Furthermore, the war in Iran is affecting the global trading system at the worst possible moment, when the architecture of global trade is undergoing its most dramatic transformation since the creation of the Bretton Woods system in 1944. The current global economic system is not collapsing, but is undergoing a fundamental reorganization, with the aim of replacing economic and technological sovereignty with the efficiency of free market as the organizing principle of global trade. And now, amid the pressure from Trump's tariff offensive and the continuing fragmentation of supply chains after Covid and the war in Ukraine, the global trading system has entered a new huge conflict.
Everywhere you look, as Bob Dylan sang in 1964, "The times they are a-changin' - the waters around you have grown, And accept it that soon You'll be drenched to the bone, If your time to you is worth savin' Then you better start swimmin' Or you'll sink like a stone, For the times they are a-changin'" - with huge new problems emerging almost every day.
Even the usually more careful in its estimates IMF did not delay this time and clearly warned (on March 9 this year) that "prolonged military actions in the Middle East can seriously affect markets and economies worldwide, creating a "new normal" that politicians need to prepare for. ... In this new global environment, we must think the unthinkable and be prepared". According to the IMF, countries must organize their internal policies in order to have the capacity to deal with crises.
And the IMF is right. Another disruption in supply chains will force even more countries and companies to resort to more expensive and inefficient ways of managing their inventories, elevating accessibility to them as the main criterion. Continuation of the war in the region in any form would lead to immense disruptions in the supply chain worldwide, not only for energy, but also for fertilizers, sulfuric acid, and food deliveries. In this scenario, a large number of economies could experience an inflationary collapse or stagflation. And I emphasize again, it's not just about oil.
It's also about fertilizers (made from natural gas); plastics (from the many petrochemicals produced from gas and oil); composite materials used for manufacturing aircraft fuselages, and more. And there is no greater deposit of these hydrocarbons anywhere else in the world, except here. It is highly questionable whether we will even be able to extract them from the ground. The most important event that affected the markets was the news that Qatar is shutting down its facility in Ras Laffan. Ras Laffan is the largest gas terminal on the planet, and the North field is the largest gas deposit. In fact, it is more than that. It is the largest source of energy everywhere - bigger than any oil deposit or uranium mine.
Despite the initial rise in gold prices, things in this area are not entirely clear. Will the interest in gold be maintained by world central banks, which have been the main institutional buyers so far? Or will countries decide that in an increasingly uncertain world, stockpiling reserves of oil, food, and fertilizers suddenly makes more sense than stockpiling gold bullion. Under pressure, would central banks begin selling some of their gold to protect their exchange rates or to buy food?
Up until now, many analysts have overlooked a key question - that of the basic interest rates. Higher oil prices will significantly increase inflation of consumer prices. This risk will likely force major central banks, especially the European Central Bank (ECB), to maintain interest rates at a "higher rate for longer" or even raise them in order to combat rising energy costs. The European Central Bank is faced with a real dilemma. Inflation in the services sector is still sustainable, and the oil shock would lead to higher overall inflation - but at the same time, growth prospects are deteriorating under the combined impact of tariffs, uncertainty, and now energy costs.
And this increase in interest rates will lead the least efficient sectors of many economies into recession, as the cost of capital will exceed the return on investment in these sectors.
Exchange Rates: In principle, whenever the price of oil rises, it has a significant impact on the exchange rate. The dollar always becomes more expensive, as it is the main currency associated with oil. So if suddenly your sales decrease and your borrowing costs increase, this increases your vulnerability. That is why the dollar becomes more expensive. Usually the euro becomes cheaper.
Currencies considered safe havens, such as the US dollar (USD), the Japanese yen (JPY), and the Swiss franc (CHF), will be in high demand, while global stock markets may be subject to immense selling pressure.
Overall, the war in Iran has led to a volatile state of the global economy in 2026. It is headed towards further social and economic fragmentation and will have a negative impact on businesses, households, multiple sectors, and countries.
Commercial consequences are already being seen: insurers are canceling policies, transportation costs are increasing, and ships are changing routes or halting transit; air corridors between Europe and Asia have been disrupted. The additional effects extend far beyond energy. In fact, the combination of higher energy costs, disrupted logistics, and overall confidence shock will significantly hit the volume and growth of global trade.
Eurozone countries and Europe as a whole will be the most vulnerable region to the events in the Middle East. Europe is the place where the macroeconomic consequences are felt strongest. Now the region may face an energy shock in addition to the tariff trade shock. Europe imports almost all of its oil and a considerable portion of its liquefied natural gas.
In Bulgaria, the main state institutions, the government, the National Security Council at the Ministry of Defense, and the new president have denied the threat of economic risks due to the war in Iran. This was a superficial and risky assessment, not in line with the real situation in the Middle East region and the escalating trade, economic, and financial consequences.
In Bulgaria, there is currently a higher inflation and a continued decrease in disposable income, especially for those at the lower end of the income spectrum. It cannot be denied that with the adoption of the euro, the pressure on disposable income caused by inflation is undoubtedly a hot political topic that will be exploited during the upcoming elections. It is important to note that this pressure is being observed in our country at a time when the prices of gasoline are still not sufficiently affected by the Iran-US conflict. If this changes, the political climate in our country could change very quickly and become very unstable.
When the complex economic and financial consequences of the war in Iraq reach Bulgaria, they will interact with our weakened financial stability, human resilience, and ability to recover. Now, considering the dynamics of inflation, the sharp political instability and polarization in the country, the war surrounding us, the lack of budget and the increasing external debt, it is obvious that there are serious reasons for us to be greatly concerned.
Therefore, I propose that the Prime Minister order an urgent objective inter-ministerial analysis/report on the economic, trade and financial risks that Bulgaria faces due to the war in Iran.
Such an analysis should cover the entire chain of interconnected indicators and foundations of our national economy, starting from:
- prices of energy products
- available reserves and stocks;
- growth of inflationary pressure by price groups and sectors;
- the impact of rising inflation on interest rates, respectively the expected actions by the ECB and the Bulgarian Central Bank;
- the impact of a potential increase in interest rates on mortgage and consumer loans, on the housing market and other sectors;
- what changes would the change in interest rates have on household budgets (which will be the most affected!);
- how the decline in the value of stock market shares will affect the accounts of pensioners in private pension funds in our country;
- what will be the reflection on investments on a national scale;
- what will be the impact of the war on budget expenditures, as a major regional conflict may require significant additional state financing and how this will affect our budget deficit;
- defense spending and strengthening our national security will require even greater borrowing and likely at a higher cost - how will all of this affect our overall fiscal situation? And specifically, when expenses will have to increase at the same time as inflation rises.
All of these important consequences/some of them just risks for now – of course, they do not appear overnight, but they grow and will continue to grow on top of each other. So, by putting all of this together, I hope we understand what our national economy may face. This is the overall logical chain reaction of the body of our economy and its surrounding environment. And all of this, in the end, will fall on the daily life of everyone.
Bad loans are likely to increase. I am deeply concerned about the low levels of income distribution among households, among the poorer social classes. Their prices in euro, the value of services in euro will intensify their pressure on the standard of living and will undoubtedly increase the size of their debts. All this will be complicated if there are additional errors in economic and financial policies. If low-income households reduce their consumption, not because they do not want to spend, but because they cannot afford to, this will gradually spread to higher layers. And it will hit our growth rates. So for almost everyone, navigating in this extremely uncertain economic and social environment will become even more complex. And that against the backdrop of depleted public trust and against the backdrop of at least two major national elections in 2026.
That's why I propose such a report to be prepared quickly and to be presented for consideration by both the new President and the new parliament elected after the elections.
There is no time to waste. The situation is highly dangerous in economic terms. Bulgaria could enter the vicious cycle of a constant fiscal crisis treated with ineffective short-term measures, with budgets made for political revival, rather than for the strategic revival of our economy.
A strategic state would consider all the above arguments and proposals as a red flag and would take decisive action.
London-Sofia, March 12, 2026
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