ISA Monthly Issues to Watch - March 2026
War in Iran
With the United States and Israel launching a series of major attacks on targets across Iran, including the killing of Iran’s Supreme Leader Ayatollah Ali Khamenei, a new major war has erupted in the Middle East. While Iran has launched retaliatory attacks across the Middle East, the haphazard nature of these attacks has highlighted the weakness of Iran’s armed forces. It is likely that this conflict will continue for at least a few more days, but it is also clear that the US would like to avoid a lengthy war in a region in which it continuously finds itself militarily engaged. The big question now will be who emerges within Iran to take charge of that country. Hardliners close to the clerical regime will certainly attempt to retain power, but they could face a major uprising among Iranians that are angry with the state of their country after 47 years of clerical rule. Meanwhile, the war in Iran is taking place as a war has erupted between two of its neighbors, Pakistan and Afghanistan, further destabilizing the Middle East and Central Asia.
More Tariff Chaos
No issue has caused more uncertainty for the global economy over the past 14 months than that of the wide range of tariffs that were imposed by the Trump Administration on many of the goods imported into the United States. Now that the US Supreme Court has ruled that these tariffs were illegal, businesses and investors were hoping for more stability in terms of trade with the world’s largest economy. Instead, the Trump Administration has imposed a 150-day, 10% tariff (that might jump to 15%) on most imports into the US. This is certain to cause all sorts of chaos within the United States, while leading to even more uncertainty for those businesses that are conducting trade with the US. Moreover, the impact of these tariffs is slowing beginning to be felt by more sectors of the US economy.
Will Europe Actually Rearm?
One of the major geopolitical developments of the past few years has been the decision by many European governments to dramatically increase their countries’ spending on defense. For example, Germany (Europe’s largest economy) has indicated that it intends to double defense spending in the years ahead. However, there remains a good deal of uncertainty surrounding Europe’s ability to significantly increase its defense spending, due to the region’s sluggish economy and the opposition to such a move by large segments of the population in many European countries. However, with the United States focused elsewhere, and with Russia continuing its war in Ukraine, many European leaders will likely decide to cut public spending elsewhere in order to shift more public spending to defense.
AI’s Impact on the Economy
The continuous improvement in the capabilities of artificial intelligence (AI) is leading to new hopes and fears for the impact that this ground-breaking technology will have on the global economy. On the positive side, many economists believe that AI will lead to a surge in productivity growth that will unlock much higher rates of growth for those countries, industries and businesses that adopt AI wholeheartedly. On the other hand, there are growing concerns about the potential for AI to eliminate vast numbers of jobs, including many high-paying jobs, something that would result in a sharp fall in consumption as income levels fell. Both sides may be right, as there are signs that the spread of AI is boosting productivity and beginning to lead to job losses in some sectors of the labor market.
The World’s Next Conflict Zone?
While the world’s attention is focused on high-profile conflicts in Iran, Ukraine and Central Asia, another region may prove to be one of the world’s most volatile flashpoints. That region is the Horn of Africa, where a range of conflicts and disputes is threatening to bring chaos and anarchy to much of that region, while also involving several outside powers. Conflicts are already raging in Sudan, Somalia and northern Ethiopia, while South Sudan is again on the brink of another civil war. At the same time, outside powers such as the United States, Saudi Arabia, Turkey and the United Arab Emirates are all heavily involved in this region, often backing rival forces. Unless immediate steps are taken to reduce tensions in this region, the entirety of the Horn of Africa could soon be a war zone.
Two Supercharged Economies
While the global economy as a whole has performed a little better than expected in recent years, some of the world’s previously-fastest-growing economies have faced severe headwinds during this period. However, there are two economies that have performed spectacularly of late. This first is Taiwan, whose economy expanded by a whopping 8.7% last year, up from 5.3% in 2024. This is due mostly to Taiwan’s domination of the semiconductor industry which has benefitted from a surge in AI-related demand. The second economy of note is Guyana. This small country’s economy has grown by an average of more than 35% per year since 2020, making this the world’s fastest-growing economy by a wide margin. This is due to the Guyana’s rapidly-growing offshore oil industry, which has allowed Guyana to become the wealthiest country in South America by a wide margin.