The Global Economy in the Crosswinds of the War on Iran
The attacks launched by the United States of America against the Islamic Republic of Iran, acting jointly and in solidarity with Israel, threaten the global economy and are pushing markets toward a new crisis amid growing fears that the confrontations could widen and drag on. This is especially true given that these attacks come roughly eight months after the clashes that erupted between Israel and Iran, which the United States brought to a close at the time by striking Iranian nuclear facilities.
Reinforcing these fears is the prospect that the confrontations could escalate into an open-ended war that does not conclude within the timeframe intended by those who ignited it, exposing the global economy to every possible contingency. Such an outcome would accelerate the slowdown in the global economy, given the setbacks it could inflict on several vital sectors, foremost among them energy, tourism and aviation, alongside the expected surge in insurance and shipping costs.
Over the past year, the global economy managed to maintain a notable degree of growth despite the global trade war triggered by US President Donald Trump through the tariff increases he enacted, in addition to his threats to the independence of the Federal Reserve and other practices. Despite those shocks, inflation continued to decline, and equity markets in Europe and other parts of the world reached new record highs, according to specialized press reports.
Yet this growth in the global economy may not hold up for long in the face of the developments triggered by the US and Israeli attacks, which quickly turned into a regional conflict as Iran targeted Gulf Arab countries and their vital facilities. Indicators on the ground suggest that the military confrontations are still in their early stages, making it far too soon to determine their medium and long-term outcomes.
Iran's attempt to close the Strait of Hormuz is causing direct negative repercussions for energy supplies, disrupting maritime navigation and throwing global supply chains into disarray, which threatens to slow the global economy due to shortages of production inputs. This results in lower rates of goods production matched by higher prices, pushing inflation to higher levels.
Closing the Strait of Hormuz to maritime traffic will have direct repercussions for the oil and gas-producing countries bordering the Arabian Gulf, particularly those that have no alternative outlets to export their output other than through this vital sea lane. Iraq, Qatar and Kuwait are among the producing countries most vulnerable to economic damage, owing to their near-total reliance on the strait to export their oil and gas, which constitute a primary source of their public revenues.
Ironically, Iran, which is working to close the strait as a geopolitical bargaining chip, will itself be among those hardest hit economically by this measure, alongside its main trading partners, foremost among them China, the largest importer of oil from the region in general and from Iran in particular.
Signs of rising oil and gas prices began to emerge the day after the confrontations started, with oil reaching around $80 a barrel, an expected development given that roughly a fifth of global oil supplies pass through the Strait of Hormuz. Brent crude had already risen by about 12 percent to reach around $73 a barrel over the past month, driven by the growing likelihood of a conflict breaking out between the United States and Iran. A prolonged closure of the Strait of Hormuz threatens to trigger a major shock in global oil prices and could push them past $100 a barrel, according to experts' forecasts.
Natural gas markets are likewise not immune to the repercussions of closing the Strait of Hormuz to shipping and of the military escalation targeting vital facilities. Here it should be noted that Qatar's announcement halting liquefied natural gas production caused gas prices in Europe to surge by 45 percent. This is bound to intensify inflationary pressures on global economies, especially European ones that rely on liquefied natural gas imports. It could also weaken their industrial activity and increase the likelihood of slower growth or even a slide into recession.
Conversely, oil prices are poised to rise on global markets as soon as Iranian oil exports come to a halt, even if navigation through the Strait of Hormuz remains open to vessels. This is particularly the case given that Iran ranked seventh among oil-exporting countries at 1.66 million barrels per day in 2025, behind Saudi Arabia, Russia, the United States, Iraq, the United Arab Emirates and Brazil, unless other producing countries move to offset the halt by increasing their output.
Asian countries stand to suffer the most in the event of a disruption to maritime traffic in the Strait of Hormuz, led by China, owing to its heavy reliance on energy imports from the Gulf region, especially Iranian oil. According to EIA data for 2024, about 84 percent of crude oil and condensate exports, and around 83 percent of liquefied natural gas shipments that transited the strait, were bound for Asian markets, led by China, India, Japan and South Korea.
It is worth noting that oil price instability poses a direct obstacle to sustainable economic growth: every new increase in oil prices of $10 a barrel in a given year can reduce growth rates by 10 to 20 basis points the following year. Consequently, any sustained rise in oil prices will reflect negatively on the global economy.
Accordingly, the continuation of the US-Israeli war on Iran and the obstruction of international navigation through the Strait of Hormuz represent not merely a regional crisis, but a global economic shock. The global economy remains heavily dependent on energy flows from the Gulf, and any disruption to this vital artery will reflect directly on global energy security on the one hand and on the global economy on the other.
It could also contribute to rising inflation rates internationally, turmoil in financial markets, and higher shipping and marine insurance costs, which would curb the pace of global economic growth and exacerbate uncertainty in the international economy. In an economically interconnected world, the economic cost of war may prove far higher than the cost on the battlefield itself.
Translated from Arabic with AI. Read it in Arabic