Since the US-Israeli strikes on Iran began on February 28, Tehran has launched ballistic missiles targeting Israel, US military bases, oil depots, and other infrastructure across the Gulf region. Iranian attacks on vessels in the Strait of Hormuz have dramatically reduced traffic in the channel, through which about 20% of global oil and gas supplies transit. Iran also attacked fuel tankers in Iraqi waters on Thursday, according to multiple reports. QatarEnergy suspended its LNG production after an Iranian drone attack on March 2, straining the global LNG market.
Oil prices have soared, with Brent crude at $106 per barrel as of Monday morning, up more than 40% from $72 per barrel on February 27. LNG prices have risen almost 60% since the start of the war, according to Muyu Xu, senior crude oil analyst at Kpler. Prices of refined products like petrol, gas oil, jet kerosene, and fuel oil have seen significant increases and are expected to continue rising if energy flows through the Strait of Hormuz remain largely shut, Xu added.
Countries, particularly in Asia, are scrambling to secure alternative energy supplies at higher prices due to disruptions in the Middle East Gulf. About 84% of crude oil and 83% of LNG that passed through the Strait of Hormuz in 2024 was bound for Asia, according to US Energy Information Administration data. China, India, Japan, and South Korea accounted for nearly 70% of oil shipments through the Strait of Hormuz, with about 15% bound for the rest of Asia.
According to a March 9 report by Capital Economics, if the conflict is short-lived and Iranian attacks cease, oil and LNG prices would fall sharply, with Brent crude reaching $65 per barrel by year-end. In case of a longer war, oil prices would rise further to around $130 per barrel in Q2, and shipments through the Strait of Hormuz would be affected, the report states. This projection contrasts with longer-term forecasts that anticipate price declines due to market oversupply.
Global commodity prices are set to tumble to a five-year low in 2025 amid an oil glut, according to the World Bank's Commodity Markets Outlook. Overall commodity prices will remain 30% higher than in the five years before the COVID-19 pandemic. Next year, global oil supply is expected to exceed demand by an average of 1.2 million barrels per day, a glut exceeded only during the 2020 pandemic shutdowns and the 1998 oil-price collapse. The oil glut partly reflects a major shift in China, where oil demand has essentially flatlined since 2023 amid industrial slowdown and increased electric vehicle and LNG truck sales. Several non-OPEC+ countries are expected to ramp up oil production, and OPEC+ maintains significant spare capacity of 7 million barrels per day. From 2024 through 2026, global commodity prices are projected to plummet by nearly 10%.
Global food prices are set to fall 9% this year and an additional 4% in 2025 before leveling off, leaving them nearly 25% above the 2015-2019 average. Energy prices are expected to drop by 6% in 2025 and an additional 2% in 2026. Falling food and energy prices should make it easier for central banks to control inflation, but an escalation in armed conflicts could complicate this by disrupting supply and driving up prices. Indermit Gill, World Bank Group Chief Economist, stated that falling commodity prices can provide a buffer against geopolitical shocks but do little to alleviate high food prices in developing countries.
High prices, conflict, extreme weather, and other shocks have made more than 725 million people food insecure in 2024, according to Gill. Assuming the Middle East conflict does not intensify, the annual average price of Brent crude is expected to fall to a four-year low of $73 in 2025, down from $80 a barrel this year. If the conflict escalates and reduces global oil supply by 2% (2 million barrels per day) by year-end, it could disrupt prices. The likelihood of such escalation remains uncertain, adding volatility to market forecasts.
The war in Iran has caused chaos across Gulf shipping lanes, and government analysis suggests a prolonged closure of the Strait of Hormuz could lead to CO2 shortages. CO2 is a key component in beer production, and a shortage could affect the UK's over 1,500 breweries and pubs. A CO2 shortage could risk issues in serving beer, especially with high demand during the upcoming FIFA World Cup. Media reports have warned that pubs could see beer taps run dry during the tournament due to the conflict, and sources say brewers could run short of carbon dioxide if the conflict is not resolved.
According to The Times, senior officials have drawn up contingency plans for a 'reasonable worst-case scenario' based on the Strait of Hormuz remaining closed until June. The UK government recently agreed to invest £100m into a UK-based CO2 plant in Teesside to address potential shortages. A spokesperson for the British Beer and Pub Association said they are not aware of any imminent CO2 issues but remain in close contact with the government to monitor and address potential disruptions.
The supply of CO2 for brewing has remained tight since shortages in the early COVID-19 pandemic in 2020, with many brewers experiencing regional supply disruptions. Current commercial demand for CO2 equals current production levels, so any disruption in production negatively influences supply. Seasonal maintenance on CO2 producers' equipment typically occurs in the fall, with several major producers scheduled for major maintenance in coming months, potentially causing significant interruptions.
The southeast U.S. may be hit particularly hard by CO2 shortages, with major downtime scheduled at two large production facilities in Virginia and Georgia. Demand for CO2 is projected to grow 2% annually over the next five years, while supply is growing more slowly than demand. New incentives to reduce carbon emissions via sequestration will further impact future availability of commercial beverage-grade CO2.
Brewers are advised to take steps now to mitigate potential current and future CO2 supply disruptions. Industries beyond brewing, such as food processing and healthcare, could also be affected by CO2 shortages, though the extent of potential impacts remains uncertain.