Steve Keen, the noted heterodox economist who is, with me, one of the two economists in the world who propose that our economic thinking should always take double-entry bookkeeping into account to ensure that we always consider the consequences of our actions when appraising economic ideas, policies and events, has posted an article on Substack concerning the economic consequneces of the war in the Middle East.
Entitled 'Things Fall Apart', his core argument is not really about the war now happening. It is about the fragility of the economic system that war has exposed.
First, he suggests that what appears to be a geopolitical crisis is, in fact, a systemic economic shock. The potential closure of the Strait of Hormuz is not just a regional disruption but is instead the severing of a critical artery in a tightly interconnected global production system. Energy, fertiliser, and key industrial inputs all flow through it. Interrupt that flow, Steve argues, and the consequences propagate everywhere.
Second, he argues that mainstream economics has left us intellectually unprepared for this reality. The neoclassical assumption of “competitive markets” with endless substitutability is, he says, a dangerous fiction. Real-world production is concentrated, specialised, and time-dependent. You cannot simply “replace” lost supply, nor can output adjust instantly to price. The models used by economists no longer describe how production and markets actually work.
Third, and most importantly, Steve highlights the centrality of energy and material inputs. Production is not an abstract function of labour and capital; it is physically grounded. Cut the energy supply, and Steve suggests, based on economic modelling using his Ravel model, that output falls more or less proportionately. In that case, cut fertiliser supply and food production collapses. And because fertiliser is time-critical, missed planting cycles cannot be recovered later.
Fourth, this leads to his most alarming claim: the greatest risk from this war is not battlefield casualties but famine. Modern agriculture is heavily dependent on fossil fuels and chemically produced fertilisers. If these inputs are disrupted, global food output could fall below subsistence requirements. In that case, the crisis becomes one of mass starvation, potentially affecting even high-income countries that have allowed their strategic reserves to be depleted.
Finally, Steve's wider point is that the global economy is not resilient but brittle. It resembles a tightly stretched web: strong under normal conditions, but liable to collapse when key nodes fail. War, in this context, does not just destroy assets; it unravels the system itself. And because our economic thinking has ignored these physical dependencies, we risk discovering this fragility only when it is too late.
The implication is clear. What is currently being presented as a political or military crisis is, in reality, a profound failure of economic understanding, leaving societies dangerously exposed to a cascading, system-wide breakdown.
That claim is a big one, but it is based on macroeconomic forecasting generated by his Ravel model, which, unlike most macroeconomic models, is grounded in reality rather than the economic fiction that almost all professional macroeconomists subscribe to.
Is Steve right that this war might create a death toll higher than that of World War II, where the estimated loss of life arising as a result of that conflict has been estimated at maybe 80 million? Quite clearly, I do not know. I do not have the capacity to forecast these things the way Steve does, nor have I seen all his workings to satisfy myself that everything he is claiming is right.
However, what I can say with certainty is that the second-order effects of this war are going to massively outstrip the number of first-order deaths to be suffered either by the armed forces engaged in combat or the immediate civilian populations of the countries directly impacted by the hostilities.
Unless the consequences of failing global supply chains for oil, gas, fertiliser, helium, other raw materials, and consequent second-order products such as food, medical supplies, technology and other items are managed effectively by international agreement to ensure that hardship is limited to the greatest possible degree, and that rationing is not imposed by price alone, then the risk that there will be very large numbers of casualties, particularly from famine, is incredibly high, and Steve is entirely right to draw attention to this.
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You don’t really need a model to predict this. Modern society is based on cheap oil. That was coming to an end anyway; this is accelerating it.
What is required – but won’t happen – is for the West to stop waging war to capture resources, and to consume less.
Richard, Steve’s analysis and warnings – not quite a forecast as yet, but there is still time for that to change if the war continues – resonates with your earlier blog post about the lack of action from Rachel Reeves where she isn’t even acknowledging the warnings and letting people know the Government is developing contingency plans!
All I see is economic opportunism dressed as as some sort of modern crusade against Islam. Some of these areas – such as Iraq – are becoming some of the hottest places on the planet and not able to sustain human life without strategic interventions. And yet we seem to be creating a cauldron of human suffering in this area. I can smell death in the air already.
Bombing these facilities in Iran? That would be a war crime in my view.
As for Pete Hegseth – well, this leery Yank thug is going to hell if he presides over this – whether you believe in it or not.
Everything could run with ‘just-in-time’ planned perfection delivering free-market utopia to the world if nay-sayers stopped going on about ‘fragility’and ‘resilience’. Don’t they realize that global warming, as long as it’s kept below 6 degrees has been proved, by a Nobel Prize winning economist no less, to be irrelevant because virtually all business takes place indoors?
And they need to realize just how much democracy gets in the way and spoils the future for everyone. What the world actually needs is to be run efficiently by CEO’s. And for that to be imposed.
Yes, the problem with Stalinist Russia was it wasn’t ruthless enough.
🙂
Perhaps instructive to look at Ancient Rome. The Sack of Rome in 410 AD wasn’t as per Hollywood. It was really just a bit of looting and the Vandals went off to Tunisia. The city carried on and it was still a million people in 530 AD. However, Alaric besieged it and severed the aqueducts. Overnight all the fancy Senatorial mansions on the Palatine and Esquiline became uninhabitable. Civil Society had decayed to the point where there was nobody able and willing to organise repairs, so by 560 AD the population had fallen to little more than 50,000 huddled along the Tibur where water could be got from the river. The rest of the city fell into ruin quite quickly. A dark age settled and lasted over 600 years. The largest and most important city of its day ruined by the failure of less than a dozen water pipes, and the loss of skills and capacity to do anything about it.
A parable worthy of note
I agree with the thrust – things are rarely as stable as they appear, and all this may yet pass.
But just on a point of detail, there has been some elision of people and dates.
Alaric was the king of the Visigoths who sacked Rome in 410 (and he died the following year). He was not a Vandal.
The Vandals skirted Italy via Gaul and Spain to north Africa, and came from Tunisia under Gaiseric to sack Rome in 455.
Most of the aqueducts were blocked during the siege of Rome in 537 by the Ostrogoths under Vigitis, but they failed to take the city. They came back and succeeded in 546 and again in 550 under Totila.
This succession of sieges and sackings shows just how weak the old Roman west had become. The last western emperor Romulus Augustulus had been deposed by the (possibly Germanic or Gothic) king Odoacer in 476, himself deposed by the Ostrogoths under Theodoric in 493.
By 537 Rome was occupied by Belisarius, sent west by Justinian to retake the Italian heartland from the Ostrogoths. The Byzantines largely failed, but they weakened the (Ostro)Gothic kingdom of Italy, and the Goths were followed by a succession of rulers of smaller domains – Lombards and Franks and so on.
Can I suggest that the issue is not whether Steve Keen’s concerns are right or wrong; it is to me, “Are they credible”? I believe they are, and further, that they represent the most likely outcome. But our government will never admit openly to this being the future they see; that would cause panic which they need to avoid. But maybe they are preparing for all eventualities, including Steve’s? I hope so.
Stranger things have happened.
I will give a breakdown of damage/destroyed energy and fertilizer production in the middle east from quotes online.
The UAE said the South Pars attack posed a threat to global energy and to the security and stability of the region.
Ras Laffan, hosting the world’s largest urea production facilities, produces approximately 12–14% of the global supply
As a major hub for nitrogen fertilizer, it is critical to global agricultural inputs, with Qatar overall accounting for roughly one-tenth of global urea exports before the 2026 strikes. Repairs would take up to five years, he said. For a ballpark estimate of the cost of the work, the original construction bill came to $26 billion for the two trains.
The attack on Qatar’s hub “marks a significant escalation in the Middle East war”, Theresa Fallon, the director of the Centre for Russia Europe Asia Studies, wrote on X, adding: “The economic effect will likely be felt for years.
Production Capability: The facilities can produce about 5.6 to 6 million metric tons of urea annually.
Global Impact: The Persian Gulf region as a whole (where Ras Laffan is a key site) provides roughly 46% of the world’s urea supply.
I expect Steve’s predictions to be very close as his Ravel software is the only forecasting tool that treats economics as a complex system running on logical rules.
One element that should be taken into account here, is that the Epstein Class, who are leading the world into this sh1t-sh0w, are probably fully aware that millions will die and indeed probably WANT this to happen. We plebs are just annoying and get in the way anyhow.
I ask readers to take a look at the writing (also on Substack) of Kait Justice and, particularly, Alisa Valdez-Rodrigues (Alisa writes). Alisa’s latest post is linked below (but you may need a login)
https://substack.com/home/post/p-192749322?selection=92d988d2-8a13-49f7-9d00-9beb2d3c7671#:~:text=Jeffrey%20Epstein%20was%20their%20instrument
Now, what do we do about this?