Iran War's Energy Disruptions Pose Growing Threat to Global Economic Stability

Iran war triggers oil shock, inflation, and global economic risk as Hormuz disruption hits energy, trade, and supply chains.

Cover Image Attribute: Residents queue up for LPG cylinder distribution in Ranchi in India on March 7, 2026. / Source: Press Trust of India

 The escalation in the Middle East conflict, marked by United States and Israeli strikes on Iranian targets on February 28, has had profound global economic implications. The retaliatory ballistic missile attacks on oil infrastructure, Gulf facilities, and vessels in the Strait of Hormuz-a critical chokepoint responsible for roughly one-fifth of worldwide oil and liquefied natural gas shipments-have triggered widespread ripple effects. Within weeks, energy prices surged, supply chains faced disruptions, and governments and businesses began reassessing their exposure to ongoing instability. Brent crude, which was at $72 a barrel before the strikes, soared above $106, while liquefied natural gas prices increased nearly 60 percent, reflecting immediate shipment constraints to Asia, where most Gulf crude and gas were destined.
Countries across Asia began urgently seeking alternative supplies at higher costs and implementing emergency measures to manage inventories and demand, as a senior crude oil analyst at Kpler explained. "As Middle Eastern crude oil and refined products are unable to reach Asian markets, nations are scrambling for alternative sources at elevated prices and adopting emergency measures to control inventories and demand," he said. The economic impact of the Strait's effective closure is becoming clearer through rising fuel prices, reduced demand, and macroeconomic indicators like inflation. At least 85 nations experienced petrol price increases, some by as much as 68 percent in Cambodia and 50 percent in Vietnam, prompting authorities in Pakistan, the Philippines, Thailand, and Myanmar to introduce four-day workweeks, alternate-day driving restrictions, and online fuel registration systems. These measures have reduced manufacturing output and services activity, compounding productivity losses already evident in aviation, where airlines rerouted flights, increased fares, and faced jet fuel costs rising from $85-90 to $150-200 per barrel.
Global stock markets registered an average decline of 5.5 percent in the war's first weeks, with Asian exchanges bearing the brunt: Japan's Nikkei 225 fell 11 percent, India's Nifty 50 dropped 7 percent, and Europe's STOXX 600 slipped 6 percent. The International Monetary Fund's managing director noted the broader test of economic resilience. "We are seeing resilience tested again by the new conflict in the Middle East," she said during a March 9 symposium. Regional analysts pointed out varying degrees of vulnerability. One nonresident senior fellow at the Middle East Council on Global Affairs observed that China had largely internalized its supply networks and benefited from diversified sources and strategic reserves, though, as an export-oriented economy, it remained exposed to a global downturn. Europe, still recovering from earlier energy strains, faced additional pressure on industries already operating with high costs, while the United States, largely energy self-sufficient, nevertheless contended with higher fuel expenses that disproportionately affected farmers and lower-income households.
As the conflict entered its third week, oil prices breached the $100-per-barrel threshold, and European gas prices doubled, shifting market expectations from a short-lived episode to a potentially drawn-out shock. Analysts at major financial institutions highlighted parallels with past energy-driven recessions in 1973, 1979, and 1990. The chief economist in the United Kingdom at the accountancy firm Deloitte remarked, "Higher energy prices, triggered by war or revolution in the Middle East, were important factors in Western recessions in 1973, 1979, and 1990. The surge in energy prices in the wake of Russia's invasion of Ukraine collapsed Europe's growth rate in 2023." A senior analyst at Société Générale added that market assumptions of a quick resolution carried asymmetric risks. "Market wisdom still holds that the war will end quickly, with the Strait of Hormuz soon to reopen. Maybe the market is right, but in my opinion, the risks are asymmetric that stagflation bursts the complacency bubble." Barclays analysts described the uncertainty surrounding the conflict's objectives, duration, and potential offramps as having induced "a dense fog" over forecasts.
The war's impact extended beyond raw energy commodities into petrochemical feedstocks that underpin modern manufacturing. Half of global urea and Sulphur exports, essential fertilizer ingredients, originate in the Middle East, and their disruption threatened spring planting seasons and food prices in importing nations. Qatar, source of one-third of the world's helium, saw production halted at facilities struck by missiles, raising concerns for microchip fabrication, medical imaging, and electronics. Plastics, chemicals, and pharmaceuticals faced similar bottlenecks, with one Société Générale note warning that "fossil fuels and petrochemical feedstocks run through the deep plumbing of the modern economy. The stakes of this conflict are enormous for the global economy." A fund manager at RBC BlueBay reported an increasing shortage of refined products, exacerbated by China's export ban on diesel, gasoline, and jet fuel aimed at protecting domestic supplies, with South Korea and potentially the United States considering comparable restrictions. The head of commodities energy strategy at ING noted that while current disruptions appeared temporary, the duration remained uncertain.
A new phase of the conflict emerged when Iranian retaliatory missiles struck the Ras Laffan liquefied natural gas complex in Qatar, which produces roughly one-fifth of global supply, followed by attacks on refineries and gas facilities in Kuwait, Saudi Arabia, and elsewhere. Israeli strikes on Iran's South Pars field added to the damage. A former United States diplomat and Energy Department official captured the shift in strategic targeting. "We have moved from stopping transit, which is a temporary measure, to attacking infrastructure, which has long-term effects," he said. These developments transformed what might have been a short-term transit blockage into damage that could curtail supplies for months or years, amplifying risks to heating, power generation, and industrial activity in Asia and Europe.
At the CERAWeek energy conference in Houston, the chief executive of TotalEnergies warned that disruptions lasting more than three to four months would cross into systemic territory. "A disruption to global energy supplies from the U.S.-Israeli war on Iran lasting beyond three to four months would pose a systemic risk to the global economy," Patrick Pouyanne stated. He noted that the squeeze on refined fuel products had become more acute than the crude oil shortfall itself, worsened by the Chinese export ban. "The disruption to global fuel supplies is worse than the disruption to crude oil supplies because a Chinese export ban on products like diesel, gasoline, and jet fuel has exacerbated it. The ban has made the fuel supply situation in Southeast Asia unsustainable," he added.
The International Energy Agency's chief reinforced the gravity of the situation, describing the crisis as combining two oil shocks and one gas crash. "The global economy is facing a major, major threat today, and I very much hope that this issue will be resolved as soon as possible. No country will be immune to the effects of this crisis if it continues to go in this direction. So there is a need for global efforts," Fatih Birol said. He quantified the supply loss at 11 million barrels per day, exceeding the combined impact of the two 1970s oil crises, and reported that at least 40 energy assets across nine countries had been severely or very severely damaged. Oil briefly touched $100 a barrel before tumbling more than 10 percent on announcements of productive United States-Iran talks and postponed strikes, illustrating markets' sensitivity to any prospect of de-escalation.
The shock waves reached diverse sectors and geographies. In India, which imports 90 percent of its crude oil and nearly half its liquefied petroleum gas, with the majority of those volumes passing through the Strait of Hormuz, factories, restaurants and delivery services faced gas shortages. At the same time, even cremations in Pune were affected. The release of the film "Toxic: A Fairy Tale for Grown-ups," valued at 6 billion rupees, was postponed from March to June due to reduced Gulf audience attendance and projected declines of 20 to 25 percent in regional box office collections, potentially costing the UAE-GCC market $15 million. The film's lead actor and co-producer explained the decision. "The current uncertainty, especially in the Middle East, has created a situation that impacts our goal to reach and connect with the widest possible audience. Therefore, in the interest of our partners and our audience, we have made the difficult but carefully considered decision to reschedule our release."
Italian farmers in Calabria reported squeezed margins as diesel, fertilizer and pesticide costs climbed, further complicated by tariffs that dampened export demand for wine and pasta. A third-generation winemaker said, "Everything will be more expensive. If we put one euro more on the price of the bottle, I'm sure that we will sell less wine." In the United States, higher fuel expenses threatened to offset tax refund gains, with a 20 percent increase in petrol prices adding an estimated $6 billion in monthly household spending. The president of the American Farm Bureau Federation warned in a letter to the administration that fertilizer and energy cost spikes posed risks to food security and broader inflation. "Not only is this a threat to our food security — and by extension our national security – such a production shock could contribute to inflationary pressures across the US economy," he wrote. Aluminum users, noting that 25 percent of global supply transits the strait, expressed concern; the president and chief executive of Wisconsin-based Oshkosh Corp. observed, "Anybody that manufactures anything has to pay attention to this and any consumer in our economy has to pay attention to it."
Central banks faced difficult trade-offs. Australia's central bank governor cautioned against allowing second-round effects to embed. "If we don't raise interest rates, and we're going to see second-round effects coming from petrol prices and fuel prices, they'll get into supply chains. If inflation gets built into the fibers, and then we will see the costs of Everything going up, and that will be a much worse outcome," Michele Bullock said. Economists at Bloomberg projected that sustained prices above $83 a barrel could erase United States household gains from tax refunds. At the same time, longer disruptions might lift UK and euro-area inflation by 1 percentage point and trim growth by 0.5 percentage points. Barclays forecast that an average oil price of $100 for 2026 would shave 0.2 percentage points from global growth and add 0.7 points to headline inflation. An economist at Société Générale described central banks as operating "at the mercy of war."
Yet, mitigating factors offered some perspective. The International Energy Agency coordinated the release of 400 million barrels from member stockpiles. At the same time, global energy intensity had fallen about 70 percent since the 1970s, and many economies had diversified sources following earlier crises. Markets reacted positively to signals of possible ceasefires, with one strategist at Bank of America noting that participants were actively seeking an "offramp." A chief US economist at Bloomberg Economics and others emphasized that consumer confidence could erode quickly if the situation persisted, but also that short-duration shocks might be absorbed. An economist at Emkay Global Financial Services in India summarized the transmission channels: "Oil and gas supply constraints are now impacting demand and operational capacities across industries. Growth could face headwinds through several transmission channels: softer consumption as household purchasing power erodes; constrained government spending as possibly higher oil subsidies complicate fiscal deficit management; and weaker investment as elevated input costs compress corporate margins and profitability."
Governments responded with targeted measures. China raised maximum retail fuel prices, Sweden's prime minister acknowledged the test to national finances, and Greece allocated 300 million euros for household and farmer relief on diesel, petrol, and fertilizer. The World Trade Organization's chief economist underscored the Middle East's role as a transportation and services hub whose disruption threatened forecasts for 1.9 percent growth in global goods trade. Four weeks into the war, the cumulative effects of higher input costs, reduced freight capacity, and uncertain energy availability had placed central banks, businesses, and households on heightened alert. While some analysts still viewed the conflict as ultimately resolvable, the consensus emerging across financial markets and policy circles was that any extension beyond the immediate horizon would intensify pressures on inflation, growth, and living standards worldwide, underscoring the interconnected nature of global energy markets and the need for coordinated international efforts to restore stability.

With reporting by Al Jazeera, The Guardian, NDTV World, The New York Times, Reuters, and Yahoo Finance UK.

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