The economic impact of the war involving the United States and Israel in Iran is beginning to ripple across the globe, as disruptions to energy supplies push oil prices higher and raise fears of wider economic consequences.
The conflict has disrupted oil exports from the Gulf region, sending global oil prices soaring toward $85 per barrel and unsettling financial markets. Analysts say the supply shock has already driven up fuel costs and renewed concerns about the world’s reliance on Middle Eastern energy.
Much of the disruption centres on the Strait of Hormuz, a critical shipping route through which about 20% of the world’s crude oil supply normally passes. Shipping traffic through the waterway has been blocked by the conflict, significantly restricting global supply.
Producers across the Gulf have been forced to cut output as alternative transport routes remain limited. In Iraq, oil production has reportedly dropped by more than 60%, while Kuwait and the United Arab Emirates have also reduced production.
Energy disruptions are not limited to oil. Around 20% of global natural gas supplies have also been affected after QatarEnergy halted production, citing military attacks linked to the conflict.
Analysts at JPMorgan warn that visible shortages could emerge in parts of Asia and Europe within days, particularly in regions that depend heavily on imported energy. Some Asian governments have already introduced price caps and rationing measures, while universities in Bangladesh have reportedly closed early ahead of the Eid al-Fitr holiday.
In the United Kingdom, Chancellor Rachel Reeves has warned that the crisis could trigger an inflationary shock if energy costs continue to climb.
Attempts to ease the pressure by releasing strategic oil reserves are also being discussed, though experts say such measures would have limited impact.
Hunter Kornfeind of Rapid Energy Group described the situation as one of the largest supply shocks in modern oil market history.
“This is essentially the biggest supply shock at least in modern global oil market history,” he said, adding that any reserve releases would be minimal compared to global demand.
Oil prices have surged sharply since the conflict began. Both Brent crude and the US benchmark, West Texas Intermediate, briefly approached $120 per barrel before easing back to below $85.
The price spike is already being felt by households and businesses. Natural gas prices across Europe have nearly doubled since the conflict began, while fuel prices in the United States have climbed to nearly $3.50 per gallon, up from about $2.90 a month ago.
Analysts at Goldman Sachs estimate that if oil prices temporarily reach $100 per barrel, global economic growth could fall by about 0.4 percentage points.
However, if the conflict continues, some forecasts suggest oil could rise above the peaks seen during the Russian invasion of Ukraine, with prices potentially reaching $150 per barrel in extreme scenarios.
Higher energy costs are also beginning to affect other sectors. The Middle East is a major supplier of key industrial materials including aluminium, sulphur and fertiliser components such as urea.
Rising fertiliser prices are already causing concern among farmers in the United States as the planting season approaches.
Meanwhile, stock markets in energy-dependent economies have also reacted to the uncertainty. Major indexes in Japan and South Korea have dropped sharply since the war began, while Germany’s DAX has also declined.
Analysts warn the economic pressure could soon translate into political challenges, particularly for Donald Trump as Americans face rising living costs ahead of upcoming elections.
Even if hostilities end soon, experts caution that fears of continued instability in the region could keep global energy prices elevated for some time.