That is the question on every investor's mind. The ceasefire was extended but Iran refuses to attend US-led talks, calling them a waste of time. The Strait of Hormuz remains functionally closed. Oil sits above $96 a barrel. And the downstream effects are now hitting real economies, real businesses, and real people.
Asia's future is looking rocky. Even if a peace deal materialises soon, the damage is already done: months of cancelled flights, surging food prices, factory pauses, delayed shipments, and empty shelves for products long considered quick and easy to buy worldwide. Countless businesses are verging on insolvency. Governments are taking on enormous debt to slow inflation. By year's end, in the most dire projections, millions across Asia could be pushed into poverty.
Per Barrel
Decline
Single Day
Brace for impact. Inflation or demand destruction? Why not both. The oil shock feeds into everything: transport, manufacturing, agriculture, construction. The longer the Strait remains closed, the more shortages we will see. This is not a theoretical risk. It is happening now.
When energy costs surge, the economy faces a brutal choice. Either prices rise across the board (inflation), or consumers and businesses simply stop buying (demand destruction). In practice, you often get both at once, and that is what we are seeing form.
NAB has increased the probability of its downside scenario for the Australian economy to 45%, up from 42.5%. That means only a 52.5% chance of a positive outlook. The bank is preparing for the prospect of, at minimum, a very mild recession. In their worst case: the economy shrinks by 2%, unemployment spikes above 9%, and house prices collapse.
Each week we check in on the S&P 500 Shiller CAPE ratio. It smooths out short-term earnings noise by using a 10-year inflation-adjusted average. When the CAPE is high, future returns tend to be lower.
At ~36.5, the CAPE remains more than double its historical median. When you pay expensive prices, your future returns are lower. Add a war, an oil shock, and rising recession probability, and the risk-reward equation for passive investors looks increasingly unfavourable.
CAPE data sourced from Robert Shiller, Yale University. Updated weekly.
