Bolt from the Blue
The Risks Markets Cannot Price
The world is entering a new nuclear era in which the assumptions and institutions that once contained catastrophic risk are breaking down. While policymakers are responding to this shift, markets remain structurally unable to price events as they occur.
As we prepare to publish, the failure of the US-Iran talks in Pakistan has been followed by the announcement of a US naval blockade. This is an escalation not seen since the Cuban Missile Crisis, which brought the world to the brink of a nuclear confrontation. As the US moves from episodic to sustained engagement against Iran, it underscores the central argument of this piece: that the global system is being pushed beyond the limits of traditional assumptions about risk, restraint, and rational behavior.
When the global pandemic struck, overnight economists and other analysts became epidemiologists. When the Iran War began, suddenly everyone was a military strategist or atomic scientist. I have too much respect for healthcare professionals, scientists, and the military to try to replicate their expertise. Instead, I would like to follow a different path to discover where the self-reinforcing risks are during the current crisis and what can be done to mitigate them.
First among the underestimated risks is nuclear war:
❝ In 2025, it was almost impossible to identify a nuclear issue that got better. More states are relying more intently on nuclear weapons, and multiple states are openly talking about using nuclear weapons for not only deterrence, but also for coercion. Hundreds of billions are being spent to modernize and expand nuclear arsenals all over the world, and more and more non-nuclear states are considering whether they should acquire their own nuclear weapons or are hedging their nuclear bets… Nuclear states and their partners need to invest now in proven crisis communication and risk reduction tools, recommit to preventing the spread of nuclear weapons, refrain from nuclear threats, and pursue a more predictable and stable global security system. 1
—Jon B. Wolfsthal, director of global risk at the Federation of American Scientists (FAS), and SASB member, Bulletin of the Atomic Scientists.
Can We Afford to Be Wrong?
For the rest of the world, the stakes are very, very high. Given the strength and resilience of the US, what would definitively derail the US economic engine, and everyone else, would be a kinetic conflict involving nuclear weapons, and that is what must be avoided at all costs. I have worried about this scenario since I wrote The Coming Accidental War with Iran more than 15 years ago. Nine countries now have the capacity to launch a nuclear attack. 2
In a hugely significant article, also in the Bulletin of the Atomic Scientists, it appears that satellite evidence exists that shows that the Iranian government was storing or concealing 60% enriched uranium in June of last year. 3 The first strikes against Iran by the US and Israel commenced within days of this discovery.
The combined use of AI and enhanced satellite imagery means that there is no place to go and no place to hide. This is particularly important in places like Iran and China, where US intelligence services have more limited capabilities, presence, and reach than in open societies.
François Diaz-Maurin | Nuclear Weapons (The Bulletin of the Atomic Scientists.
If the findings of in the Bulletin are correct, this means that Iran could now have access to a crude nuclear weapon. That possibility changes everything and in my view and challenges the logic of nuclear stability.
We Have Been Warned Before—and Failed to Act
I am far from alone in this concern. Newt Gingrich has recently written about the possibility of a nuclear attack against Chicago, which obviously hit home with me.
❝ What if in the next decade or two Iranian missiles armed with nuclear warheads destroy several American cities? If we were to lose Chicago, Seattle, or New York, the scapegoating would begin… ‘How could this have happened? 4
In January of 2001, the Hart–Rudman Commission, backed by figures such as Newt Gingrich, issued its holistic report on US security threat. 5 Its conclusion, delivered months before the September 11 attacks, was dire, and one warning in particular proved prescient: Americans would likely die on US soil in large numbers. Warnings are simply not enough, however, actions must follow.
Today, we are again confronted with a series of risks that are widely discussed but insufficiently integrated: energy chokepoints, nuclear proliferation, cyber vulnerability, and the fragility of global supply chains—all at once. No systemic study at the level of Hart-Rudman exists today.
The End of the Peace Dividend Era
For too many years, we have been half-asleep in a fake empire of complacency. We have allowed unsupportable and unsustainable situations to persist for years that pose highly consequential risks, such as depending on our rivals for materials essential for our national survival. We have failed to do the hard work that could have assured a continuation of peace and prosperity.
My generation has been unbelievably fortunate, and I’m afraid, lazy. For the past three quarters of a century, since nuclear weapons were deployed against Japan, most of mankind has enjoyed a peace dividend that is atypical of any other time in human history. As Winston Churchill said:
❝ The history of the human race is War. Except for brief and perilous interludes, there has never been peace in the world.
This quote is mentioned in a 2024 book by Annie Jacobson, Nuclear War, A Scenario.6 As the war in Ukraine drags on, a crisis looms in Taiwan, and the war in the Strait of Hormuz threatens the global economy, the nuclear option has reemerged. The possibility of a “bolt from the blue” as the Pentagon calls a nuclear attack on the United States, is a scenario we need to keep in mind. The Doomsday Clock now stands at 85 seconds to midnight.
The first responsibility of any government is to prevent this kind of utter destruction, and the huge swath of “dead when found” casualties from ever occurring. It would create a level of worldwide chaos that we can probably not truly comprehend and can only contemplate through literature. Covid’s effects would pale in significance.
After the fall of Iraq, Libya, and the war in Ukraine, nuclear disarmament for countries such as North Korea now seems improbable. At the same time, the incentives for both maintaining and acquiring nuclear weapons have in fact, skyrocketed.
Deterrence Revisited: Waltz vs Sagan
For decades, the dominant debate over nuclear weapons was framed by two competing schools of thought in political science.7
Kenneth Waltz argued that the spread of nuclear weapons could, paradoxically, reinforce stability. If more states possessed nuclear capabilities, the logic of deterrence would extend more broadly. Rational actors, faced with the certainty of catastrophic retaliation, would avoid escalation.
Scott Sagan disagreed. He argued that this framework assumed a level of rationality, control, and institutional competence that could not be guaranteed. As the number of nuclear actors increased, so too would the risk of miscalculation, accident, or unauthorized use.
For much of the Cold War and its aftermath, Waltz’s view appeared to hold, and nuclear weapons were not used. A strained stability was maintained. But the current environment is different. The number of potential nuclear actors is growing. The time required to move from enrichment to weaponization is shrinking. The systems designed to manage escalation including arms control agreements, backchannel communications, and shared norms are weakening.
Waltz saw stability in proliferation, while Sagan saw fragility. Today’s world looks far closer to the latter.
The Unthinkable Becomes Thinkable
Although it is widely assumed that nuclear weapons have not been deployed since Hiroshima and Nagasaki, Jacobsen reports in her book that during the Cuban Missile Crisis, the US and the Soviets both exploded two nuclear warheads in space, as a show of force. As we know this episode ended without violence due to cool-headed leadership on both sides. The risk was managed, if only narrowly.
US leadership is acting as if this risk is real and rising. Markets are behaving as if it is remote, or nonexistent.
Another factor is the expansion of nuclear energy due to energy insecurity and AI-hungry data centers. Nuclear energy is not a weapon, but enrichment capability overlaps, and fuel cycle knowledge transfers. The boundary between military and commercial capacity is thinner than it appears.
440 nuclear reactors are operating worldwide, 60+ are under construction, and more than 110 are planned. Accidents have occurred: Three Mile Island, Chernobyl, and more recently Fukushima. These events are rare, but they are not theoretical. 8
The number of “threshold states” is growing. In addition, new technologies, such as small modular reactors (SMRs) are equipped with passive cooling systems. But while they may reduce the risk of catastrophic failure at a single, large site, they also expand the distribution of nuclear materials and increase the number of actors with access to advanced fuel cycles. We cannot hold back this technology; as with cryptocurrencies, the answer lies in proper national regulation, effective governance, and international oversight.
During the Cold War, nuclear risk was highly concentrated. Now it is widely distributed.
The Erosion of Nuclear Guardrails
Another shift is taking place at the institutional level. Nuclear risk was once managed not just through deterrence, but through treaties, verification regimes, and shared norms that constrained behavior even between adversaries. That architecture is now weakening. The guardrails are loosening just as the system is becoming larger and more complex.
The Intermediate-Range Nuclear Forces Treaty collapsed in 2019. The New START framework has effectively broken down, removing limits on the world’s two largest nuclear arsenals. The Treaty on the Non-Proliferation of Nuclear Weapons remains in place but is under increasing strain as more countries approach nuclear threshold capability.
One might ask, where is the United Nations in all of this? Sowing confusion: Iranian officials have recently taken seats in UN-affiliated human rights bodies, even as the UN condemned Iranian actions against protestors. This is more than a contradiction— this is a kind of moral absurdity. It underlines the struggles of international institutions to come to terms with geopolitical reality.
Iran and the Breakdown of Containment
The conflict with Iran is about the erosion of nuclear containment. What is striking is how quickly the response to the US military actions escalated. Iran’s immediate move to disrupt the Strait of Hormuz revealed something deeper. It was not just tactical, but a signal that the constraints that once governed state behavior are weakening. In a previous era, escalation was managed through deterrence and norms. Today, the system no longer assumes restraint but merely reacts to its absence.
Now that this has happened, however, diplomatic efforts hosted by Pakistan have ended. There was skepticism in Delhi that the Pakistanis had the ability to sustain this effort, given their own critical internal economic challenges. Iran does not have the support of other powers in the Middle East, such as Saudi Arabia and the UAE. Having played their trump card so early, Iran has given its neighbors a green light to build bypass infrastructure. In the short term at least, the US wins as export prices go higher, and both shale producers and nascent energy technologies find new life.
Most experts doubted that Iran would score an own goal by closing the Strait of Hormuz. If that was previously unthinkable, can we expect restraint once nuclear weapons are in place? An economic option to open the Strait of Hormuz has been proposed by the Iranians: charging tolls. But the SoH is not a man-made canal—it is a natural formation. Levying tolls would be a violation of UNCLOS, but although Iran signed this agreement of the law of the sea, it did not ratify it.
For the last 47 years, Iran has isolated itself from many parts of the world community. It does not appear that Russia or China is coming to its aid. The neighboring countries they have recently attacked are aligned against Tehran.
How Quickly Do the Economic Effects Spread?
The simple answer: much, much sooner than we think, especially with the new blockade. Details are emerging, but it has been announced that the US will allow no ships to pass through the Strait at all.
Based on dates on this map from JP Morgan, many countries have already stopped receiving oil supplies. (h/t https://substack.com/@prikishore)
Although Russia has hugely benefited from higher oil prices and sanctions relief, China obviously does not, as an oil importer and as an exporter of goods. Slow ships mean slow sales. Beyond the Iran crisis is the current enmity between the US, China, and Russia. While Europe and Japan will have to spend more on defense, Chicago analyst James Bianco see a more expensive future ahead post-crisis:
❝ Supply chains will have to pivot from “just-in-time” efficiency back to “just-in-case” redundancy. Inflation returns as safety costs money. Trade routes diversify away from vulnerable chokepoints. The global friction tax becomes permanent.
In my view, this goes beyond politics and should be in place because of other threats, such as COVID and the 3/11 disaster in Japan so clearly demonstrated.
Day 32: From Shock to Systemic Stress
We are now at Day 32 of the disruption in the Strait of Hormuz. What began as a supply shock is becoming a system-wide stress test of global energy resilience.
Asian economies in particular could be highly impacted by the delays in oil deliveries. Each additional day the SoH is effectively closed puts the region at higher risk of literally running out of gas. Most governments did not fully imagine nor prepare for a true halt. Sometimes, it is the mix of reserves that is the problem.
In fact, the Philippines has just declared an energy emergency. Only China seems to have adequate reserves, perhaps with an eye towards a different conflict. The knock on effects are too numerous to list. For example, it has been rumored that China will stop exporting sulfuric acid next month, a key component for many industrial processes including energy, food, and pharmaceuticals. Sulfur is a byproduct of oil and gas refining, used to produce sulfuric acid. This affects fertilizers, copper and nickel processing, battery materials and is an example how far-reaching this crisis could be if it continues.
The China Factor
Over the past five years, since COVID, China has experienced a sustained economic slowdown driven by structural imbalances, debt, and demographic decline. In its previous role as the engine of global growth, the impact was positive, but the current lag in domestic demand transmits via various channels to international markets. Increased exports and threatened disruptions to supply chains, along with the overhang of military action against Taiwan, threatens disruption and adds to systemic weakness overall.
So far in China, the increase in energy prices has helped to temper a disturbing deflationary trend. But China faces other challenges that will be exacerbated by the crisis in Hormuz.
The US Economy: Relatively Unaffected
The US economy, in spite of a long patch of rough skies that began with COVID, is flying nicely higher than the rest of the G7 and its global competitors. The recent 49-day government shutdown pinged last quarter’s GDP, but the US still leads OECD forecasts for 2026:
Harvard economics professor Jason Furman has recently written an op-ed in the New York Times that reinforces the view that although other economies might be impacted by the war, the US economy is steaming along nicely, less reliant on oil than it used to be while AI is yet to show up in the data, either positively or negatively.
❝ Productivity growth is showing some tentative signs of increasing but has still largely followed the trajectory expected before the pandemic.
I will also go out on a limb and say the same will apply to the latest war in the Middle East. It is already hurting consumers and damaging the U.S. economy. But, like tariffs, it would be a mistake to think the war will significantly alter the economy’s direction. Oil prices have soared, but financial markets are betting that they will come back down, albeit not to as low as was expected before the latest events.
The rise in the oil price could on the contrary have a beneficial effect. US crude oil exports reached a record of almost 5 million barrels a day in April, driven by Asian demand due to the closing of the Strait of Hormuz.
US CPI rose as expected in March driven by high energy prices due to the war in Iran. In a note to clients, Chicago economists Michael Lewis and Gordon Parrish at Free Market Inc summarize the challenge:
❝ As expected, the Iran-related spike in oil and gasoline prices pushed the total CPI up +0.9% for March. Most observers, including Fed Chair Jay Powell and FMI, believe that this disruption will be transitory.
Conclusion:
The peace dividend of the postwar era is ending. Even if the current episode in the Persian Gulf ends in a peaceful solution, we need to recognize that its origin, an attempt to stop the development of nuclear weapons by a sanctioned state, marks the beginning of a new nuclear threat— and all of the risks that implies to humanity and the global economy.
We have been warned before. The Hart–Rudman Commission identified the risk of catastrophic attack on US soil years before it occurred. Today, the warnings are again visible, repeated, and widely discussed, but not fully integrated into how we assess risk. We rely too heavily upon markets for signaling, and they simply do not have all of the information.
The danger is not that these risks are unknown. It is that they are treated in silos as separate problems: energy insecurity, nuclear proliferation, cyber threats, and supply chain fragility. If nothing else, as the tide rolls out, this crisis will reveal that they are inextricably interconnected.
The global system is becoming more complex at the same time that the mechanisms designed to stabilize it are weakening. The implications of this shift are already visible in energy markets, labor dynamics, and global growth patterns—but not in the way most investors expect. Markets have learned how to price exogenous shocks. They have not learned how to price low probability, high impact existential threats.
With the announcement of a US naval blockade, the system is no longer being tested in theory. It is now under sustained pressure, and the assumptions of political rationality that once underpinned stability are being tested in real time.
Lyric Hughes Hale
Lyric Hughes Hale serves as Editor-in-Chief of Econvue, which publishes a newsletter, econVue+. She hosts The Hale Report, a podcast series on global economics. She is Director of Research at Hale Strategic
Further Reading
On Hoping You’ll Be Wrong, Luci Ellis Chief Economist Westpac Group, Westpac, April 10, 2026
Could the Islamabad Talks End 48 years of Hostility Between the US and Iran? Seyed Hossein Mousavian, Middle East Eye, April 10, 2026
Dazed Delegates to IMF Spring Meetings Wait in Suspense, Mark Sobel, OMFIF, April 10, 2026
Will Trump Nuke Iran? Pervez Hoodbhoy, The Bulletin of the Atomic Scientists, Apr 10, 2026.
Is the US-Iran ceasefire already doomed? Trita Parsi, Al Jazeera, Apr 10, 2026. Even if the talks fail to produce a deal, a return to an all-out war may still be averted.
By econVue Contributors and Guests
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This Saturday, delegations from the United States and Iran are slated to head to Pakistan to try to negotiate a lasting end to the war between them. Among the bones of contention will be the Strait of Hormuz: the crucial waterway through which one-fifth of the world’s oil and liquefied gas normally passes. Iran’s closure of the strait since the conflict…Read more
Random Access Economics: Karim Pakravan, Global Financial and Emerging Markets Weekly Update
Quote of the Week: “The war is now best thought of as a chokepoint crisis with system risk, and has moved into a domain in which escalation is non-linear and difficult to control,” Wei Yao, an analyst at Société Générale…Read more
Footnotes
Press release, 85 Seconds to Midnight: Doomsday Clock Ticks Down Closest Ever to Human Extinction, Bulletin of the Atomic Scientists, Jan 26, 2026.
SIPRI; Federation of American Scientists, global nuclear arsenals data:
https://www.sipri.org/yearbook
https://fas.org/issues/nuclear-weapons/status-world-nuclear-forces/
Analysis: Iran likely transferred highly enriched uranium to Isfahan before the June strikes, François Diaz-Maurin | Nuclear Weapons, The Bulletin of the Atomic Scientists, Mar 29, 2026
If We Lose Chicago, Newt Gingrich, Apr 9, 2026, https://gingrich360.com
https://www.ojp.gov/ncjrs/virtual-library/abstracts/hart-rudman-commission-and-homeland-defense
Nuclear War: A Scenario, Annie Jacobsen, 2024
https://www.penguinrandomhouse.com/books/
The Spread of Nuclear Weapons: A Debate Renewed (Second Edition) Scott D. Sagan, Kenneth N. Waltz, 2002.
World Nuclear Association, global reactor statistics (2025–2026):
https://world-nuclear.org/information-library/current-and-future-generation/nuclear-power-in-the-world-today.aspx