The war on Iran may trigger economic, geopolitical and energy disruptions that permanently alter the global order – leaving Australia dangerously exposed.

There have been three occasions in my time on this planet when the trajectory of the world as I knew it, at least from the very fortunate vantage point of an Australian living in Australia, bifurcated.

The first was September 11 with the terrorist attacks in the United States. Which stripped away much of the naivety of a 20 something year old soon to be father. The second was the Global Financial Crisis where it appeared for a while that the financial system which underpins economic activity, and hence prosperity, could collapse. The third was the COVID pandemic, an event which had the most direct impact with shortages of staple goods, movement restrictions and a small taste of what authoritarianism looks like.

Yet after each of these three events, life in Australia has largely returned to what would be considered normal.

We are indeed the lucky country.

For unlike many other countries around the world, such as Iraq, Afghanistan, Libya or Yemen, where bifurcations have led to years if not decades of systemic hardship, death and destruction, Australians continue to enjoy a high standard of living as well as something that many of us in my view take for granted. That is a stable functioning society, even though this has started fraying in recent years. Primarily because of the poor quality and divisive leadership from our political class.

The unprovoked war of aggression against Iran by Israel and the United States will create another bifurcation. This time however I suspect life will not simply return to normal once the Tomahawks and Kheibar missiles stop flying. What we are facing is a discontinuity. There was a world before 28 February 2026. And the world after 28 February 2026 will never be the same.

Total War – what happens when you don’t leave an outlet free

As I noted in What is Iran's Strategy, Iran has a been backed into a corner. It is fighting for its existence.

Sun Tzu in The Art of War noted that “When you surround an army, leave an outlet free. Do not press a desperate foe too hard." Yet the demands of the US during the negotiations (which were still underway when Iran was attacked – an act of perfidy) effectively offered Iran nothing. The US demands required Iran to capitulate. Coupled with the subsequent attacks by Israel and US, Iran was backed into a corner. There was no outlet – and this was deliberate.

Iran’s response, as noted by Philip Pilkington is Total War.

Total war is something that we are not familiar with. Particularly for Western nations in the post World War Two era, where we have largely controlled and contained the violence such that the direct impacts at least have been insulated from Western nations. Even in Ukraine, where the proxy war against Russia has seen the highest intensity prolonged combat since probably the Korean war, we have not witnessed total war.

The nature of Iran’s strategy continues to become clearer. It is not just defence. It is not just the eviction of the United States from West Asia. It also includes disrupting the core of the global economy, its economic (oil and gas) and financial (insurance and banking) arteries. The logic appears to be that either Iran succeeds, or if it fails it brings down both its direct enemies and those that have enabled its enemies, creating an enormous amount of collateral damage along the way.

Regardless of whether Iran is successful or not in terms of achieving what could be called a victory, by the time this war ends, it is likely that the damage will have already been done.

Australian geography meets Western decline

In March of 2022, barely a month after Russia commenced its special military operation in Ukraine, I wrote an article for Pearls and Irritations suggesting that the war in Ukraine would see a decisive transfer in the balance of power from the West to the East.

That has indeed proven to be the case. Even before the attack on Iran, the collective west was divided, incoherent, corrupt, morally bankrupt, as well as being industrially and economically weakened.

Examples abound. From US threats against Canada and Greenland, growing fissures over support to Project Ukraine, deindustrialisation in Europe after cutting itself off from cheap Russian gas and resources (and President Putin indicating that Russia might permanently turn off the spigot), and political dysfunction highlighted by the extreme unpopularity of functionaries such as Starmer, Macron and Merz and EU interference in the democratic electoral processes of its member states.

Yet despite the growing weakness the façade of western power remained.

The outcome of the war on Iran is likely to put the very idea of the western superiority and dominance out of its misery. Yes the west, primarily the United States, can still cause untold levels of death and destruction as we are presently witnessing in the bombing of Tehran, but uncontrolled violence disconnected from achieving viable political outcomes is just that – violence.

The end of a world where the west and in particular the United States, is not only no longer dominant, but more importantly, seen not to be dominant, is of critical importance to Australia. Still yet to reconcile its geography with its history and culture, clinging ever tighter to the anachronism that is the US empire, we could well become as Singapore’s Prime Minister Lee Kuan Yew so eloquently put it, the “poor white trash of Asia.” Isolated in our region through our unwavering and unquestioning support to wars of aggression and genocide, with a so-called ally who, as the Gulf States are rapidly recognising, can’t defend us but will use our territory to project violence, one likely discontinuity is Australia becoming an outcast in our region.

Economic discontinuities

The most immediate discontinuities are however likely to be economic and financial.

Australia, a country that imports almost all of its oil, and holds well less than the International Energy Agency’s recommended 90 days of emergency oil supplies, is, to state the obvious, extremely vulnerable both to supply disruptions and price spikes. Despite this being a known problem for decades (one of my first published articles was on this topic in 2007) successive governments have been grossly negligent in taking meaningful action to reduce Australia’s vulnerability.

We are likely to move from the long-accustomed situation of reliable and affordable access to liquid fuels, to a situation where either through physical availability, or price volatility, access to liquid fuels becomes unreliable.

The Australian economy is not designed to operate in such an environment, even for a short time. This factor alone is likely to have enormous and long-lasting impacts. The scale of this problem was detailed as far back as 2005 in the ‘ Hirsch Report’ which indicated that waiting to the peak of global oil production would leave a significant liquid fuel shortfall for two decades. The war in Iran is likely to result in a conflict induced peak in global oil production economy. And Australia is totally unprepared.

Whilst liquid fuels availability presents one discontinuity, we are equally likely to see enormous discontinuities in financial markets. This is beyond my area of expertise, but the likelihood that there will be a systemic meltdown in financial markets seems depressingly likely. The tightly coupled nature of the financial system, coupled with large debt levels across many countries and rehypothecation of financial assets suggests the impacts will flow throughout the economy including unemployment, stock markets, bond markets, insurance and re-insurance, property prices and investment flows.

China and Russia’s building of gold reserves over recent years looks exceedingly prescient at this point.

But what can Australia do?

Australia’s leadership and commentariat class needs to rapidly move past the childish debates over whether the war is or is not illegal (it clearly is) and to the likely and foreseeable impacts of this cataclysm triggered by the United States and Israel.

That is why I wrote this article – because the discontinuities we are likely to face will be difficult, painful and long lasting with impacts that across every aspect of society and the economy.

The first thing we need is to stop the war. For the longer it goes on the greater the damage. Australia often talks about working with like-minded partners. Now would be a good time to join with those partners to not only condemn the actions of the United States and Israel, but also to stop facilitating the war. Australia could repeal the Force Posture Agreement with the United States that gives it unfettered access to Australian facilities and prevent US naval and air assets from transiting through Australian territory. If all of those countries currently enabling the aggression, whether in West Asia, Europe, or the Asia-Pacific worked together, it would make it extremely difficult for the United States to be able to prosecute this war of aggression.

Second, the Government should declare a liquid fuel emergency under the Liquid Fuel Emergency Act. Australia has never had a liquid fuel supply crisis on a scale of what is likely to come. Triggering an emergency would highlight just how serious this issue is as well as provide a focal point around which to manage likely disruptions. It would provide the opportunity to test planned responses before we hit crunch time.

It might also be timely to renegotiate the conditions under which Australia exports our own natural gas and receives mighty little in return.

There is much more that could be done, but these initial actions could assist in minimising the size and impact of the coming discontinuity, whilst better preparing the public for the ‘challenges’ that lay ahead.