The U.S.-Iran war has resurrected economic forces many assumed were relics of the past, proving that globalization, energy vulnerability, and the looming threat of inflation never truly left.
Since Donald Trump's first term launched a trade and technology war against China in 2018 and the COVID-19 pandemic deepened concerns about supply chain security, it has become fashionable to declare globalization dead. The drive for efficiency and low costs that defined decades of global economic integration appeared to give way to supply chain resilience and localization. The Biden administration's “small yard, high fence” approach to strategic industries, rising global protectionism, and Trump's sweeping second-term tariffs all seemed to confirm a fundamental reversal. Analysts quickly labeled the trend “deglobalization.”
The Persistence of Global Trade
When Iran moved to block the Strait of Hormuz, the disruption extended far beyond oil and gas. Global shipping ground to a halt, and freight and insurance costs surged. The ripple effects hit food, pharmaceuticals, bulk commodities, industrial goods, electricity, and semiconductors. While some described the Middle East crisis as another blow to globalization, the fallout revealed the exact opposite: The global economy remains deeply interconnected, and the premise of its death was largely wishful thinking.
The numbers bear this out. Global trade volume in 2025 reached a record high of approximately $35 trillion, up roughly 7% year over year. Compare that to 2018—widely treated as the starting point of deglobalization—when global trade stood at $19 trillion. That represents growth of more than 36% over seven years.
A more precise assessment is that globalization continues to advance, but its form has changed. Trade volumes continue to climb, and the number of free trade agreements—including massive frameworks like the CPTPP, RCEP, and the European Union's negotiations with India and Mercosur—has expanded.
What has shifted is the underlying logic. The purely efficiency-driven model of global supply chain planning has been replaced by one that prioritizes security and regional considerations. Geopolitical fault lines now shape the structure of supply chains for strategically sensitive goods, but this is an evolution of globalization, not a negation of it.
Fossil Fuels Still Irreplaceable
In recent years, the artificial intelligence boom prompted arguments that silicon had replaced oil as the defining strategic resource of the 21st century. AI depends on advanced semiconductors, making chipmaking capacity and computing power central to geopolitical competition.
However, the U.S.-Iran war has proven that no silicon-centered framework can substitute for petroleum. Fossil fuels power global transportation and serve as the raw material for plastics, synthetic fibers, and pharmaceuticals. Without petroleum-based fertilizers, the earth could not sustain its current population of 8 billion. Modern hospitals rely on petrochemicals for virtually every sterile consumable, from surgical gloves to syringes.
When energy supplies are stable, it is easy to focus on semiconductors and AI. When they are disrupted, the global economy's tight bond to energy becomes painfully clear. If energy security is the stomach, silicon is merely the mind; a nation must feed the former before it can develop the latter.
The Return of Inflation
Finally, the war has revived the specter of inflation. Surging energy prices, sharply higher shipping costs, and supply chain bottlenecks create a hostile environment for price stability.
Echoing the 1970s energy crisis, this type of inflation tends to be delayed in its full impact and to last longer than initially expected. Its ultimate severity will depend heavily on the conflict's trajectory. The U.S. Federal Reserve, which markets expected to continue cutting interest rates, now faces a deeply uncomfortable pivot as expectations for a rate hike rise.
The war serves as a live stress test of national energy resilience. The EU has performed poorly, facing a prolonged economic and industrial downturn as a result. China, by contrast, has demonstrated considerably greater resilience.
For the Asia-Pacific region, the lingering and most pointed question remains: Where does Taiwan stand?
You've read it. Now let's talk. Follow us on X. Editor: Chase Bodiford
