In 1871 Prussian Field Marshal Helmuth von Moltke wrote an essay about military strategy that was paraphrased in 1903 by the British Royal Commission on the War in South Africa as “no plan survives contact with the enemy”. It seems to have passed the financial markets by.

As the war involving Iran, Israel and the US grinds into its third week, a curious disconnect has emerged. Tankers have stopped moving through the Strait of Hormuz, energy infrastructure across the Gulf has been struck and Qatar’s liquefied natural gas (LNG) exports, about a fifth of global supply, have been disrupted. And yet the S&P 500 remains close to record highs.

Investors appear to believe this is merely another unpleasant headline risk that will resolve before the next earnings season. That assumption may yet prove correct. But it rests on a rather heroic act of faith: that wars obey the same tidy timelines as market expectations.

Simon Gass, a former British ambassador to Iran, offered a more sober reading in conversation with the Financial Times’ Gideon Rachman at the weekend. Western planners, he suggested politely, misunderstand the nature of the Iranian system. Decapitating the leadership was never likely to collapse the regime. Iran’s political architecture was built precisely to survive such blows.

As Nato’s senior civilian representative in Afghanistan and later chair of the UK’s joint intelligence committee advising successive UK prime ministers, Sir Simon spent much of his diplomatic career negotiating directly with Tehran, including leading the UK team in the talks that produced the 2016 Iran nuclear agreement. He is not someone who speaks casually about the strategic logic of the Iranian state.

The system rests on overlapping centres of power: the supreme leader’s office, the Revolutionary Guard and the civilian government. Remove one figure and the machinery grinds on.

The Islamic Republic was forged during the Iran-Iraq war, a conflict that killed hundreds of thousands and hardened an entire generation of leaders around the idea of endurance. In Tehran’s strategic culture, survival itself is victory.

Iran does not need to blockade the Strait of Hormuz in the conventional sense. It simply needs to make passage dangerous enough that ship owners refuse the risk and insurers refuse the cover. And that appears to be happening.

According to analysis discussed on The Economist’s Insider podcast, tanker traffic has collapsed from about 46 vessels a day to somewhere between zero and five. The result is an effective disruption of about 15% of global oil supply, alongside the shutdown of Qatari LNG exports, which account for about 20% of global gas flows. A real supply shock. Yet markets appear curiously unmoved.

Oil has climbed above $100 a barrel but not yet into panic territory. Equity markets remain buoyant. The prevailing assumption is that the disruption will be a brief geopolitical squall rather than a structural storm. Perhaps. But as the economist Hyman Minsky liked to remind us, stability breeds the complacency that makes instability catastrophic.

Strategic petroleum reserves can cushion the blow. But they cannot replace lost production indefinitely. A record release from global reserves might buy a few months of breathing space. After that, the arithmetic becomes scary. Demand must fall to match reduced supply, and the only reliable way to force that adjustment is through price.

This is where the situation becomes particularly awkward for policymakers. Central bankers are trained to “look through” energy shocks. In theory, higher oil prices are a supply problem rather than a demand problem, and raising interest rates would do little to create more barrels of crude.

But the world has endured a succession of shocks in recent years, from the pandemic disruptions, supply chain fractures, the 2022 energy crisis and now tariffs and trade fragmentation. When inflation returns repeatedly, consumers stop believing it is temporary. At that point central banks are forced to act, even if doing so worsens the slowdown.

That is the macroeconomic backdrop into which this crisis arrives. And we are not well insulated from it. Despite the comforting illusion of distance from the Middle Eastern battlefield, the country remains deeply exposed to global energy markets. South Africa imports both crude oil and refined fuel. A sustained increase in global energy prices feeds directly into the domestic economy through higher pump prices, rising transport costs, more expensive fertiliser and ultimately higher food inflation.

As the rand weakens, as it tends to when global risk appetite deteriorates, the effect is magnified. Consequently, the return of a familiar and unwelcome word — stagflation — is being bandied about.

Energy shocks have done this before, of course. In the 1970s they drove inflation into double digits across the developed world. In 2008 they helped push oil briefly to a record high just months before the global financial crisis arrived.

Callum Macpherson, head of commodities at Investec, recently reflected on that episode with a wry reminder of how markets tend to misjudge oil. “Back in 2008, not long before the financial crisis hit, Brent was heading towards $150 a barrel and an infamous forecast was made that it would hit $200. Not many months after that Brent was under $40.

“Nearly 20 years and a lot of inflation later, Brent has still not broken the high it set in 2008, let alone tested $200. The current disruption in the Middle East is unprecedented in recent times and must surely be a potential contender for the conditions to set a new all-time high, and perhaps even to show that all oil price forecasts come true eventually.”

It is a wonderfully mischievous observation. Oil forecasts, like prophecies, have a way of eventually being correct, though rarely at the time they were made. Yet Macpherson’s deeper point is difficult to ignore. If there were ever conditions under which oil could test its historical extremes again, a war that disrupts the most important energy chokepoint on Earth would surely qualify.

And so the Reserve Bank, like its counterparts elsewhere this week, finds itself on the horns of a genuine dilemma. Cut rates and risk fueling inflation. Raise them and risk choking growth. Or hold steady and hope that geopolitics resolves itself before the inflation impulse becomes embedded.

There is a famous remark by the historian AJP Taylor that “nothing is inevitable until it happens”. The difficulty for policymakers is that once events unfold, they are often accused of having failed to foresee what now seems perfectly obvious.

• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at michael@fmr.co.za.