The Iran war disrupted global trade through the Strait of Hormuz, delaying oil and gas shipments and increasing global fuel prices. This raised production costs, leading to cost-push inflation and slower economic growth.
For A-Level Economics, this is a clear negative supply-side shock, shifting SRAS to the left.
However, the more important impact is long-term damage:
- Destruction of infrastructure (e.g. gas facilities in Qatar) reduces productive capacity → LRAS shifts left.
- Persistent supply disruptions mean energy shortages may continue for years.
- Higher uncertainty discourages investment → slows long-term economic growth.
- Structural changes in trade routes and control of the Strait increase long-term costs for firms.
- This can also be shown as an inward shift of the PPC, as the economy can now produce fewer goods and services due to reduced resources and efficiency.
Overall, even though oil prices have fallen after the ceasefire, the economy may face long-term lower growth, higher costs, and reduced productive potential — making this a strong real-world example of both short-run and long-run supply-side impacts.
Source: BBC (Faisal Islam)
