What the Middle East conflict has changed, and what it hasn’t

The recent US-Israel war with Iran reinforces existing regional dynamics, particularly the differentiated exposure of countries based on energy import dependence. It also highlights the transmission of Chinese deflation and vulnerabilities in the AI supply chain, specifically concerning petrochemical inputs and energy-dependent fabs in Taiwan, South Korea, and Japan. Monetary policy is shifting with ECB expected to hike twice in 2026, the Fed likely cutting only once this year and once in early 2027, and the BoE anticipated to hold with an elevated risk of hikes.