The Watchdog – Home and Abroad

 

Commentary

The Persian Gulf conflict and rising inflation are shaping a complex economic landscape, with potential stagflation and private credit woes adding to global uncertainty.

By Scott B. MacDonald, Ph.D., Chief Economist · April 6, 2026

The Persian Gulf has yet to become background noise as did the Russo-Ukraine War and Gaza. Although the latter two conflicts were disruptive to the global economy, their impact was less broad. In the US there is concern that an extended conflict will lead to inflation and a significant economic slowdown. In this context, we believe that the Trump administration is working to redefine “victory”. Thus far Iran’s military machine has been considerably downgraded and its nuclear program badly damaged, but weapons grade uranium remains at large, the IRGC maintains a stockpile of missiles and drones, and the hardliners remain in control. A further downgrading of Iran’s economy through the destruction of critical infrastructure could be enough for the US to declare victory and walk away from the Gulf, leaving the Strait of Hormuz up to Asian and European governments to deal with. Indeed, Asia and Europe are the most at risk considering their dependence on Persian Gulf oil and natural gas, while the US is better positioned to ride through the geoeconomic fall-out. While we see inflationary pressures as problematic over the next several months, those pressures could diminish later in the year by an end to hostilities and a shift back to more normal energy markets. Looking out over a very complicated economic landscape, we are bullish on oil, short-term bearish on the economy, but not yet sitting on the edge of a major economic downturn. As one of the characters in Game of Thrones, Petyr Baelish, stated, “Chaos is a ladder.” In today’s world, there are a lot of governments and companies seeking to scramble up that ladder.

The week ahead

All eyes will be on the Persian Gulf and whether President Trump will up the ante by attacking Iran’s infrastructure, including power plants and road systems. At the same time, the upcoming week is a busy one for US economic data, especially in terms of inflation. This week attention will focus on CPI and PCE inflation, the latter being a focus for the Fed. The consensus forecast is for headline CPI to leap to 0.9% monthly (up from 0.3% in February). This would take the annual rate from 2.4% to a little above 3%. PCE is expected to stay unchanged at 3%. Higher numbers would probably roil markets.

GBJ Data Note: The ISM Services PMI came in on April 6 at a lower-than-expected 54.0%, below the median forecast and February’s 56.1%, signaling continued expansion but at a slower pace.

Most of the comments indicated concern over the Iran war, though it was noted that “tariff rollbacks are resulting in favorable price adjustments” (from an accommodation and food services company) and “demand for AI computer infrastructure remains incredibly resilient” (information company).

The Iran War, Fertilizer and US States

Most farmers face higher fertilizer costs, the most since the 2022 spike caused by Russia’s invasion of Ukraine. According to Northern Ag Network (April 2, 2026): “Retail fertilizer prices are continuing to jump higher but recent increases have become much more pronounced with all 8 major fertilizers more expensive than a month ago. Prices tracked for the fourth week of March 2026 saw four of the fertilizers see double-digit increases from a month ago.”

The main reason for higher fertilizer prices is the Iran war, though tight supply and volatile natural gas prices play their part. More than a quarter of global nitrogen fertilizer trade and about a fifth of LNG, the essential feedstock for nitrogen production, transits the Strait of Hormuz. While many US farmers secured fertilizer before the war escalated, access to fertilizer could become a greater concern for US farmers if the Persian Gulf drama extends further. Fertilizer accounts for around 20% of grain costs. A lengthy conflict carries the risk of higher fertilizer prices feeding into grain prices. In turn, it means higher prices at the grocery store. Another factor is that China, the world’s largest producer, has put restrictions on fertilizer exports until the end of August 2026 to guarantee domestic needs.

GBJ Data Note: California is the US state most exposed to downside risk from higher fertilizer prices, spending $2.2 billion, followed by Iowa ($2.1 billion) and Illinois ($2 billion).

Higher fertilizer and fuel prices hurt, but the agricultural sector is not going underwater having demonstrated considerable resilience in the past. A long conflict could change that.

Private credit – do not look behind the curtain

One of the more notable scenes in the Wizard of Oz came when Dorothy peeked behind the curtain and discovered the Wizard was an old man manipulating machinery to make himself seem powerful and intimidating. Could private credit be doing the same? Indeed, only a few days ago the private credit investment firm Blue Owl was hit with substantial increase sin redemption requests in the first quarter, with investors looking to withdraw around $5.4 billion from its flagship funds due to questions about the health of the asset class and the company’s role in the market.

While private credit chiefs are hitting the financial media with denials of any problems in their sector, investors have sought to pull $19 billion from private credit funds this year. In response to this Blue Owl’s co-president Craig Packer stated: “While we believe market perception has driven elevated tender activity, underlying credit fundamentals across our portfolio have remained resilient. We continue to observe a meaningful disconnect between the public dialogue on private credit and the underlying trends in our portfolio.” In other words, the public is ignorant of market and economic trends and don’t look behind the curtain.

GBJ Data Note: Blue Owl was hit with redemption requests totaling around $5.4 billion in the first quarter, with investors seeking to withdraw $19 billion from private credit funds this year.

Our concern is twofold: considering the relatively opaque nature of the private credit sector, it is difficult to get a complete picture of what is occurring in many portfolios and that if there is enough of a loss of confidence in the sector, pressure for redemptions will increase.

Geopolitical briefs

China enters the talks in Islamabad. China has been critical of the US war against Iran and has remained aloof from the diplomacy taking place in Islamabad – until now. China has officially entered the talks, which also include Pakistan (the host), Egypt, Turkey and Saudi Arabia. China has a major interest is seeing the Persian Gulf return to normal as it is heavily dependent on imported oil and natural gas, with Iran being a major source of its oil. Natural gas comes from Qatar, which shut down LNG production after an Iranian attack on its facilities.

There is also a China-US angle to Beijing’s involvement in the peace talks. Simply stated, China needs a reset in its relations with the US. In 2022, China’s exports to the US stood at $536.3 billion; in 2025 Chinese exports fell to $309.4 billion. The US balance of trade deficit with China also dropped a high of $418 billion in 2018 to $202.1 billion in 2025. Tariffs implemented by both the Biden and Trump administrations have had a sting. This has left the landscape more challenging for Beijing – it needs US trade to maintain economic growth and the US could use cheaper Chinese goods to help with the affordability issue. In May, Presidents Xi Jinping and Donald Trump hold a summit. Both countries would probably find discussions easier if the Persian Gulf was not hanging on their necks.

Suriname-US relations – Energy. The US Embassy’s Chargé d’Affaires in Suriname, Paul Watzlavick, recently spoke on US-Suriname relations, indicating that the US is looking for deeper energy and infrastructure partnerships in the Caribbean with Suriname standing out in importance. He noted: “It’s increasingly clear that this region is an essential part to the US. We want partnerships that support a strong workforce, keep our people safe and respect the sovereignty of every country.” Watzlavick also stressed energy security in the Caribbean, emphasizing the need for modern infrastructure, updated technologies and more robust systems through power generation and transmission. Watzlavick’s view on the need to upgrade power systems is right. Considering that much of the Caribbean remains heavily dependent on oil for power generation and much of the energy generation equipment is aging, there is a strong need for partnerships, including with Suriname. Suriname benefits from having its own supply of oil, which is supposed to come online in 2028 as well as hydro-power though its power sector could use an upgrade. The tough part of keeping the lights on in Suriname and the rest of the Caribbean remains financing new infrastructure, something China has done and the US has been less inclined to use public money for.

GBJ Data Note: In 2025, Chinese exports to the US fell to $309.4 billion from $536.3 billion in 2022, and the US trade deficit with China dropped to $202.1 billion from $418 billion in 2018.

---

References

1. Northern Ag Network, April 2, 2026

---

Supported By

We are grateful for the partnership and support of individuals and organizations committed to advancing Guyanese and Caribbean development and human capital investment.

Individual Supporters
Courtney Allen | All Te Networks | Corine Locke | Tony Harris | Roderick Alsopp | Dr. Michelle Luard

🇬🇾 Please support the Guyana Business Journal & Magazine today