By TENGKU NOOR SHAMSIAH TENGKU ABDULLAH

KUALA LUMPUR: Global financial markets have reacted with surprising calm to the escalating conflict between the United States and Iran, even as military operations intensify across the Middle East and the strategic Strait of Hormuz faces renewed disruption risks.

Yet political analyst Dr Oh Ei Sun, warns that the real economic shock may still lie ahead — not in oil markets, but in how the remnants of Iran’s power structure respond to the unfolding war.

In an interview with TNS News, Oh, who is the principal adviser at Pacific Research Center of Malaysia and Senior Fellow at Singapore Institute of International Affairs. the current conflict has so far failed to trigger the kind of systemic economic disruption that characterised earlier Middle Eastern crises.

“If you look at both the Venezuela example and now the Iran example, with the US taking actions on these two countries, it did not actually create quite a shock in the world oil market,” he said.

“It is also not quite a structural shift. It is as if not much has happened.”

Background: A Rapidly Escalating Conflict

The war erupted after coordinated military strikes by the United States and Israel targeted Iranian military installations and leadership infrastructure in late February, marking the most direct confrontation between Washington and Tehran in decades.

Iranian state media subsequently confirmed the death of Supreme Leader Ali Khamenei during the initial wave of strikes — a development that sent shockwaves through the region and raised the stakes of an already volatile conflict.

In response, Iran has launched hundreds of missiles and drones against Israeli and American targets while threatening to close the Strait of Hormuz, through which roughly one-fifth of the world’s oil supply normally passes.

Global aviation and shipping networks across the Persian Gulf have also experienced disruptions as airlines and tanker operators reassess security risks in the region.

Oil Markets Show Unexpected Resilience

Despite the dramatic geopolitical developments, global oil markets have so far avoided the sharp price spikes that many analysts initially feared.

According to Oh, this resilience reflects fundamental changes in the structure of the global energy system.

“Nowadays the worldwide economic system is much more absorbent of this sort of changes,” he explained.

“Iran and Venezuela were already trading petroleum in the shadows due to sanctions. So it’s neither a shock nor a structural shift. It’s almost business as usual.”

Even if tensions continue around the Strait of Hormuz, Oh believes the impact on global energy prices may remain temporary.

“If conflicts and tensions persist in the Strait of Hormuz or the Persian Gulf, you might see a temporary spike in oil prices,” he said.

“But I frankly don’t think it will last, because nowadays there are other places — including the United States — which are pumping out more oil than before.”

Inflation No Longer Tied to Oil as Before

Oh also challenged the assumption that higher oil prices would necessarily translate into sustained global inflation.

Historically, oil shocks played a major role in driving inflation during crises such as the Middle East oil embargo of the 1970s. But the relationship between energy prices and inflation appears far weaker today.

“Previously inflation was tied to oil prices,” he said.

“But nowadays it doesn’t seem like inflation is that big of a concern anymore compared to the 1970s oil crisis. It’s just not quite the same situation.”

Even political signals from Washington suggest policymakers may not be overly concerned about inflation risks.

US President Donald Trump has continued to pressure the Federal Reserve System to lower interest rates despite the geopolitical tensions.

“Lowering interest rates typically induces inflation,” Oh observed.

“But it doesn’t appear that Trump is very concerned about it.”

Supply Chains Already Shifting

While the conflict has raised questions about economic fragmentation, Oh believes the restructuring of global supply chains is being driven more by great-power competition than by the Iran-US war itself.

“Countries have been rushing to diversify their supply chains and reduce strategic dependencies since the pandemic,” he said.

However, he argued that the more powerful structural force reshaping global trade is the rivalry between the United States and China.

“The US-China confrontation is a much bigger narrative than the war in the Persian Gulf,” Oh said.

“It has been pushing countries to pursue different supply-chain strategies, and in some cases forcing them to choose whether they lean more toward the United States or China.”

China’s Strategic Balancing Act

The conflict also places Beijing in a delicate strategic position.

China has maintained economic and energy ties with Iran while simultaneously navigating an increasingly competitive relationship with Washington.

“China is naturally closer to Iran in this situation,” Oh said.

“But its strategic rivalry with the United States is going to continue regardless.”

Beijing’s primary concern, he added, will be maintaining stable access to energy supplies.

“China would certainly like to see its petroleum supply continue uninterrupted.”

The Real Risk: Asymmetric Retaliation

While markets have absorbed the early stages of the conflict, Oh believes the greatest risk may come from unconventional responses if Iran’s leadership structure fractures further.

“I see the biggest risk being what if Iran — or the remnants of the Iranian regime — resort to guerrilla or terrorist tactics,” he warned.

Such a development could trigger a wave of instability far beyond the Middle East.

“You still remember 10 or 15 years ago there were many random terrorist incidents around the world,” Oh said.

“If that kind of environment returns, it would dampen a lot of business and investor confidence globally.”

A Calm Market — For Now

For the moment, financial markets appear to be treating the conflict as another geopolitical shock rather than a systemic economic crisis.

Oil prices remain volatile but far from the levels seen during previous Middle Eastern wars, and global equity markets have largely stabilised after initial turbulence.

Yet as the war enters a new phase and uncertainty over Iran’s political future grows, the longer-term implications remain difficult to predict.

For investors and policymakers alike, the lesson may be clear: the global economy has grown more resilient to geopolitical shocks — but it remains deeply vulnerable to the unpredictable ways wars ultimately unfold.

— TNS NEWS