The average oil price on average is about $85, right?

Before the war it was $70.

Let's suppose we're now talking about $120, that this is where we are for the next 12 months on average.

Those are much bigger numbers.

Hello and welcome to GZERO World.

I'm Ian Bremmer and today we are talking about one very precarious moment for the global economy.

For more than a year, uncertainty has become the defining feature since the United States began rolling out its trade policy.

Businesses absorbed higher costs and navigated deeper unpredictability.

Trade became a geopolitical weapon.

Alliances have been strained, and longstanding partnerships are looking to de-risk from the United States.

And now there's the Iran War.

Fuel prices spiking around the world as Tehran effectively seals off the Strait of Hormuz to all but itself and friends.

Inflation is heating up again, especially in Europe, as higher energy costs begin to seep into everyday goods.

Meanwhile, some of the world's most vulnerable economies are rationing dwindling supplies.

Even if the conflict ended today and Hormuz reopened, damage is already being done.

Shock is already lasting long enough to impact global growth.

The United Nations now expects the world economy to expand by 2.6% this year, down from 2.9% last year, and that's assuming the conflict doesn't continue.

And despite the fact that much of the uncertainty is being driven by the United States, investors are still doing what they have done in moments of panic for decades, rushing to the dollar, even as questions persist about how long it can remain the world's dominant reserve currency.

To help us make sense of it all, I'm joined by Harvard University economist, Gita Gopinath.

Don't worry, I've also got your puppet regime.

Good morning, losers.

It's two for Tuesday.

That's right.

We will today be very strongly targeting not only bridges, but power plants, too.

But first, a word from the folks who help us keep the lights on.

Funding for GZERO World is provided by our lead sponsor, Prologis.

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And by Cox is proud to support GZERO.

The planet needs all of us.

At Cox, we're working to seed the future of sustainable agriculture and reduce plastic waste.

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Koo and Patricia Yuen, committed to bridging cultural differences in our communities.

And... Donald Trump loves the dollar.

And like many things in the American president's world, he loves it so much he's putting his name on it.

But the greenback has been on one heck of a ride over the past year, shedding a tenth of its value since the start of his second term, leading many to ask, is the dollar in trouble?

For the past 80 years, the dollar has been the world's leading reserve currency because of the unmatched strength of the U.S.

economy and trust in its institutions.

So how did we get here?

Well, during World War Two, the United States became the largest supplier of weapons and goods to allied nations, paying for them in gold.

Six years of war in Europe have left behind a trail of chaos in which France has taken her full share of suffering.

- But by the war's end, those reserves were depleted.

The United States held the majority of the world's gold.

In 1944, allied countries met in New Hampshire for the Bretton Woods Conference to design a new foreign exchange system, one that would help countries ravaged by the war.

And this time, currencies would no longer be tied directly to gold, but instead to the U.S.

dollar.

And just like that, the dollar became the backbone of a new global economic order.

Fast forward to today and the dollar's dominance is starting to look a little less absolute.

Over the past year, the dollar has weakened dramatically and not without reason.

The United States imposed tariffs on friends and foes alike.

The White House launched a pressure campaign on the Federal Reserve, testing its longstanding independence, and debt just keeps on rising.

The result is more volatility, it's less confidence, and a growing chorus asking whether the process of de-dollarization is underway.

Some leaders would certainly like to think so.

Back in February, Xi Jinping revealed one of his top priorities is for China's currency, the remnant B, to dethrone the dollar.

And a priority for Russian President Vladimir Putin too.

Back in 2024, he opened a summit for BRICS allies with a call to ditch the dollar.

So is the world ready to move on from the dollar?

Well, there's one reason why it isn't, and that's TINA.

No, not that TINA.

TINA as in "there is no alternative."

For all the talk of de-dollarization when uncertainty hits, greenback is still what people turn to.

By the second half of 2025, the dollar's safe haven status was already reasserting itself.

Foreign investment in U.S.

assets climbed.

Trump's policies are accelerating efforts for countries to hedge their bets, to diversify their reserves, and build alternatives where they can.

But will the dollar be dethroned?

That is wishful thinking, unless there's a solid backup plan.

Until there is, the greenback isn't going anywhere.

Here to talk about this moment in the global economy is Gita Gopinath, former first deputy managing director and chief economist at the International Monetary Fund.

I caught up with her at Harvard University, where she's currently teaching economics.

Gita Gopinath, welcome to GZERO World.

It's a pleasure, Ian.

Earlier this year at Davos, you said that everything in the global economy has changed.

This was before the war in Iran changed things even more, but at the time, what did you mean?

So at the time, what I meant was, looking at 2025, on one hand, it was a year when we had record high tariffs set by the US, policy uncertainty shot up, China was retaliating, but if you looked at global growth, it looked like really nothing had happened.

It was not any different from what we had projected before any of this chaos had happened.

And so there was this risk that, okay, you might think, well, eh, the world economy is so resilient that nothing has really changed.

And I wanted to say, don't be fooled, because as I see it, these kinds of policy shifts that we've seen over 2025, and it's playing out now in 2026, generates what I call structural damage.

And structural damage doesn't show up... The cost of it doesn't show up immediately.

It takes time.

And the example I gave was of Brexit, which is when Brexit happened, for two years after Brexit, investment in the UK kept going up, and everybody was like, "Oh, must ado about nothing with tremendous uncertainty, but really it's not affecting the economy."

And now, if you look back 10 years later, the economy is about 6 to 8 percent smaller than what it was projected pre-Brexit, in terms of the pre-Brexit trajectory.

So recognizing that when you have these big shifts in how countries engage with each other, you're not gonna see anything immediately, but it's going to build up over time.

- So now we have this Iran war.

First, I want you to size this for me.

As you think about the likely global impact of this crisis, how does it compare to the pandemic?

How does it compare to 2008?

How does it compare to the Russian invasion of Ukraine?

Give our viewers a sense of what you think.

- Compared to the pandemic, this is at this point tiny.

How is it tiny?

During the pandemic, the global economy shrunk by 3%.

At this point, given what we see is happening with energy prices, we would expect global growth to maybe drop by 0.3 percentage points.

- So it's a tenth.

Exactly, by a tenth.

So far, as of a month plus of the shutdown, that's what we're seeing.

As of now, exactly.

And is that snowball as it goes on, or is it largely linear?

It can change dramatically depending upon how much of the energy infrastructure is damaged, such that it takes many more years to bring back that energy onto the market.

And so far, there has been damage to Qatar's LNG plant.

- Yes the biggest.

- We've seen that.

That's the biggest.

But we haven't seen much else so far.

But if this continues, and given that this is still a hot war, and the US can't control everything that happens, I mean, Iran is shooting off drones and missiles everywhere, we could see much bigger damage.

And if there is a much larger increase, for example, in what people think oil prices are going to be... So right now, I would say for the rest of the year, the average oil price, on average, is about $85.

Right?

Before the war, it was $70.

It's gone up to $85.

Let's suppose we're now talking about $120, that this is where we are for the next 12 months, on average.

Then we are shaving off closer to a percentage point from growth, world growth, right?

Those are much bigger numbers.

It can get very nonlinear too.

We're not there yet, and we haven't seen markets crack and break in any fashion, but that could happen.

Now let's talk about the different components of it.

We've got, you mentioned the oil, of course, the natural gas.

We've got the fertilizer.

We have significant knock-on effects on food.

We've got significant increase in costs of everything that involves all of these inputs, things like aluminum, things like helium, and of course, all the plastics that come out of that, right?

If you were talking about which of these things is likely to matter the most, and also the time frame of it, give us some sense.

So, in terms of magnitudes, I would say oil and gas are up there, in terms of being consequential for headline inflation.

That is where we're going to see it immediately.

We've already seen in terms of projections of what's happening with inflation.

Expectation is that global inflation is going to be higher by about 100 basis points, because even now in a good scenario with what's happening with oil and national gas prices.

- Global inflation.

- Global inflation.

- Over the entire world over let's say a year.

- Over a year.

- Wow, okay.

- Yeah, so compared to what was projected for 2026, projections are going up by about 100 basis points.

This is headline inflation, not the inflation excluding energy costs.

Which is helpful to keep in mind because we often refer to what happened with tariffs in 2025, and inflation that was caused by tariffs.

So that was about 70 basis points in the US that was caused by tariffs.

That shaved off about $600 from the typical American household's income.

So, this is like adding another $600 on top of that this year, at least, from the kinds of headline price increases that we're seeing.

The other consequence, of course, is fertilizers, and that comes with a lag.

And as of now, we're not seeing it in food prices as much.

But if this shortage continues, you could end up with planting not being sufficient, and you could see it showing up in food prices in the future.

So, these next few weeks are super critical.

Now, President Trump has said that because America produces and exports a lot of energy, that net-net this is going to be America making a lot of money.

I understand that the average American is facing higher inflation, but if we look at American GDP, does this kind of not really move the needle very much?

Relative to other major economies, the US is much less affected negatively by this Iran conflict.

Inflation does go up, and this is why I gave you the number about how you can shave off about $600 from the average income of Americans.

But in terms of the effect on the economy, in terms of GDP, the effects are smaller.

So if I gave you a kind of a ballpark, the effect on the world economy is around shaving off about 0.3 percentage points is what I said.

For the U.S., it comes down more to like 0.1 to 0.15 percentage points.

What do we think about the ability of a China to take advantage long-term of a crisis like this?

In the sense that they have far more stockpiles of key resources, they're moving more quickly towards post-carbon energy in the future.

Do you... They certainly seem, they project as if we're better positioned, we're patient.

Is that reality, economically speaking?

They are better positioned right now, just in terms of how much they've stockpiled for their energy needs, even though they rely on shipments from the Middle East.

But still, they also have other sources.

Russia has been supplying a lot of energy to them.

So they have more diversified sources of supply.

You know, China has, over the last, I would say, seven, eight years, especially after the Trump won tariffs, decided that they need to become self-dependent and they need to build all kinds of strategic stockpiles because they're in a world where, you know, they may be cut off.

And unfortunately, the events of the last few weeks are basically reinforcing that view that they need to double down on the strategy of building up at home, becoming energy independent, much more, but also pretty much on the tech sector and every other space.

The international response economically, when the pandemic hit, there was just everyone throwing an enormous amount of money at the problem.

We saw a lot of petroleum reserves, of course, opened up so you can get that into the markets.

But has there been an adequate international response thus far economically?

I think that what's really stuck is the lack of agreement between the US and Europe on this war.

And that is unique.

And I don't think that's just the fact that the Europeans believe that they were not necessarily consulted before the invasion, before the attack happened.

But it is because they've spent early part of this year talking about Greenland and about how the US may take over Greenland, or what happened in 2025 when they were told that they are, you know, a failing continent.

So that negative sentiment that has unfortunately percolated over the last year with these two powers of the world is in fact, I would say, the most consequential and what we probably carry on for into the future when I talked about structural damage.

I mean, I see that happening in terms of NATO and strategic alignment.

I'm wondering how you see that playing out right now economically.

Economically, what that means is that Europe is going to.

It's not going to happen overnight because it's going to take time, which is move towards greater energy independence, move towards greater defense self-reliance in terms of manufacturing of defense equipment, move towards greater independence of financial infrastructure in terms of payment rails.

So what we are certainly seeing around the world is geopolitically driven fragmentation.

If you look at overall world trade to GDP, it looks like really nothing is happening.

It looks relatively flat.

But if you look underneath and you see who's trading with whom, geopolitics is beginning to rewire trade floors.

And it's changing slowly over the last seven years, actually.

You see this, and especially after Russia's invasion of Ukraine, that rewiring is happening.

So what we're likely to see is much more regionalization, much more turning towards your allies as much as possible, with the allies more consistent over time, but also just a lot more of inward looking, which is if you can bring more of those things home, especially what you think is critical, then that's what you do.

So we're building in much more redundancy now into the world.

Everybody's going to duplicate production.

Sounds expensive.

It sounds expensive, which means that that's going to put pressure on costs everywhere and how much we can produce now, how much we can share, how efficiently we can work as an economy.

We've certainly moved away from that in an efficient trading system.

So one more Iran-related question.

If you had a choice as an economist, unfair question, between the Americans ending the war, but the Iranians are still there with control over who does and who doesn't go through the strait, or the United States continuing the war for another one, two, three months, which of those concerns you more economically and why?

In the near term, in the terms of the next three to four to five years, what would concern me of course is that if this war escalates and we have much bigger structural damage to energy infrastructure in the Middle East, because of which we are now living with $120 of price of a barrel of oil.

The consequences of that are very, very large.

Now if you said that if we didn't do this and we were not pushing this war forward, that means that we have a risk from the long-term perspective that actually Iran builds up a nuclear weapon and threatens the whole world and holds the whole world hostage to it.

Obviously that's a different trade.

I wasn't saying that.

Because again, you can mow that lawn.

You see it, you blow that up, 12-day war, not such an economic risk.

Bigger question is, you leave the Iranians there, they suddenly have a tollbooth.

They have the ability to let friends through.

They're charging for the privilege.

Enemies they're not letting through.

Is that something from - it sounds like economically, you'd rather have that world.

No, firstly, I do not believe that those are the choices.

Now, we'll see how that plays out.

I don't think that Iran can see itself in the middle of all those other countries, deciding that it's going to be a pariah and it's going to start charging a toll for all the ships that go through the Strait of Hormuz, and it's going to be able to implement that in a viable manner.

So I don't think that those are the choices.

I do believe that if this country wants to survive, which it does want to and exists for another thousand years, it will need some sort of revenue.

It has to live in the region and it will negotiate.

So, I suspect that there is still that powerful... Middle ground, that middle ground forward.

So, I want to turn now to an issue that's close to both of our hearts, which is the impact of AI on the global economy.

I'm wondering, how much do you see AI already making an impact on productivity and growth, and where?

AI is definitely having an effect on growth.

The US has benefited from AI for growth, mainly because of all the investment that's happening around it, and also because of all the stock market price increases that have gone up, wealth that has gone up, and the consumption that's gone up along with that.

The positive effect that came from AI offset the negative effect that came from tariffs for the US economy last year.

Equivalent?

Almost equivalent.

Almost equivalent.

Yes.

- How interesting.

Yes.

So, that's one of the reasons why nothing changed, even though we had such massive, massive tariff increases.

There's a separate question of how much is this now affecting US productivity.

Firstly, US productivity is doing really well for the last three years.

This is not just a this year phenomenon or a last year phenomenon.

For the last three years, we've seen labor productivity has picked up quite substantially.

Now AI is being used.

Whether that is truly responsible for any of the increase in productivity that we've seen so far, I think the jury is still out on that.

Now this year, that could change.

We could see an effect on productivity that's much stronger.

So the answer to your question is, there is anecdotal evidence.

There are some sectors where you've seen AI boosting productivity.

But from an economy-wide perspective, there's still really not much of a smoking gun evidence that AI is raising productivity.

Final question for you, topic for you, which is, I see that the Chinese are talking more about moving away from their dollar exposure, more towards a basket of currencies.

They come to this topic frequently in a cyclical way.

Is it more real this time?

Is it something we should pay more attention to this time?

We should pay attention to it to the extent that I don't think people know that if you look at China 10 years ago and how much it used its own currency in terms of transactions with the rest of the world, that was about close to 0%.

It was overwhelmingly the dollar.

The dollar, yeah.

And now that number is 50%.

So when China deals with the rest of the world for that entire basket of transactions, 50% is now renminbi and 50% is dollar.

That's happened over a 10-year period.

It's taken time.

But this has been conscious effort by China to internationalize the renminbi.

How far can they get with this approach?

The constraints are because, firstly, they still don't have a currency that's freely convertible.

They don't have deep, you know... Financial markets.

Renminbi financial markets.

They don't have that, unlike the US, and that puts natural constraints on how much they can do.

But I think, and I'm becoming a little increasingly more worried about this point that we started out with, which is on structural damage and the changing economic relations in the world.

I don't know if you know this, Ian, but if you look at direct trade between US and China, China's share in US imports now is back down to what it was before China entered the WTO.

2001, 9%.

It used to be at 22% just about seven years ago.

The reason I mention that is because at one level we see that these networks are tough.

You know, it's not easy to get out of China and build everywhere else.

It doesn't happen.

It's going to be costly.

It's going to take a lot of time.

But I think it's helpful to keep in mind that seven years was all it took.

And therefore, all of these ships that we're seeing right now, with the relationship between the US and Europe, between China and the rest of the world, we could see ourselves in seven to eight years in a very changed world.

And if that were to continue, would you suddenly think of the dollar as having a challenge as a global reserve currency from the RMB?

We could see definitely more, definitely more chipping away at the edges for sure.

We've already seen that with Russia and China happening.

It's again, it's not absolutely obvious how you could simply move away from the dollar given the constraints.

Now, maybe China will figure out a way to make their currencies much more convertible and develop its financial markets even more, in which case there would be more options for other countries in the world.

My prior is that it's going to be very hard, but at the same time, I want to have the humility that a lot can happen in a few years, which is what we've seen.

- Because if you and I had had this conversation seven years ago, you're saying you'd be surprised with where we are today.

- Absolutely.

- Absolutely.

Gita Gopinath, so good to see you.

- Thank you.

Thanks Ian.

And now to Puppet Regime, where world leaders may fumble cash, because they only have four fingers, but they'll never fumble their power.

Good morning losers, it's 2 for Tuesday.

That's right, we will today be very strongly targeting not only bridges, but power plants too.

We don't have the money to build our own, but we can sure as hell destroy theirs.

It's the infrastructure week you voted for.

Call now and we'll do a 3 for 2 special.

Hello?

>> I'll take it.

>> You got it.

Petrochemical plants, too.

Well, we won't.

Who knows?

Who cares?

What's a war crime when there's no new wars?

Plus, Pete already won this war three times on Polly Market.

So, praise be to my one true friend, this guy.

Can you imagine if J.D.

Vance would still be seen in public with me like that these days?

Thank you for your attention to this matter.

Thank you for your attention to this Puppet Regime.

Or maybe we'll just do a ceasefire.

Yes, sir.

Yes, sir.

They're gonna love it.

That's our show this week.

Come back next week if you like what you've seen or even if you don't, but you want a few extra bucks, well we're not giving any of that out, but pay us a visit at gzeromedia.com.

♪ ♪ Funding for GZERO World is provided by our lead sponsor, Prologis.

Every day all over the world, Prologis helps businesses of all sizes lower their carbon footprint and scale their supply chains.

With a portfolio of logistics and real estate and an end-to-end solutions platform addressing the critical initiatives of global logistics today.

Learn more at prologis.com.

And by Cox is proud to support GZERO.

The planet needs all of us.

At Cox, we're working to seed the future of sustainable agriculture and reduce plastic waste.

Together, we can work to create a better future.

Cox, a family of businesses.

Additional funding provided by Carnegie Corporation of New York, Koo and Patricia Yuen, committed to bridging cultural differences in our communities.

And... ♪♪♪♪♪