The conflict has precipitated an immediate energy crisis and global economic shock, with the vital Strait of Hormuz trade route for oil and gas shut down. According to the International Energy Agency, this closure has led to the loss of 20 million barrels of oil per day, marking the largest supply disruption in history. Oil prices soared about 6% to their highest since 2024 on Tuesday, rising for a third session as the war widened. Brent crude rose $4.70, or 6.1%, to $82.44 a barrel, and U.S. crude rose $4.43, or 6.2%, to $75.66, with Brent on track for its highest close since July 2024. The war is disrupting energy shipments from the Middle East and stoking fears of a prolonged conflict.
The Strait of Hormuz closure has caused massive supply disruptions, with Iran responding with strikes against energy infrastructure in Gulf countries and tankers in the vital waterway. Through the strait, a fifth of the world's oil and liquefied natural gas typically passes. Since the start of attacks, oil and gas infrastructure in several countries has shut because of damage or as a precaution, including Qatar stopping LNG production, Israel stopping production at some gas fields, Saudi Arabia shutting its biggest refinery, and output dropping in Iraq. Tankers and container ships are avoiding the Strait of Hormuz after insurers cancelled coverage for vessels and global oil and gas shipping rates soared. Concerns increased after Iranian media reported that Iran will fire on any ship trying to pass through the strait.
Oil and gas prices have spiked and shown extreme volatility since the war began, with Brent crude registering steep gains and dramatic fluctuations. Brent crude oil prices rose to $105.32 per barrel, up from roughly $70 before the war. U.S. gasoline futures climbed about 4% to $2.47 a gallon, their highest since July 2024, and crack spreads soared to their highest since an unspecified date.
Global energy infrastructure has sustained significant damage, prompting rerouting efforts. Iran has hit Qatar's Ras Laffan natural gas terminal, wiping out 17% of Qatar's LNG export capacity, with repairs taking up to five years, according to QatarEnergy. Iraq, the No. 2 crude producer in OPEC behind Saudi Arabia, has cut production by nearly 1.5 million barrels a day, and cuts could more than double within days as the country runs out of storage space for crude it cannot export due to the crisis. Saudi oil giant Aramco is attempting to reroute some crude exports to the Red Sea to bypass the Strait of Hormuz where the risk of attacks has slowed shipping to a near halt, sources said.
The crisis is impacting European energy security and reviving divisions. A European diplomat said Europe is experiencing deep energy-linked frustration and divisions similar to the 2022 crisis after Russia's invasion of Ukraine. However, experts note Europe is better prepared for this energy crisis than the last, with wind and solar overtaking fossil fuels in EU power generation last year. The EU has reduced its reliance on Russian energy, with only 2% of oil imports now from Russia, and plans to end all Russian gas imports by next year, according to multiple reports. Before Russia's invasion of Ukraine, Russia supplied an estimated 55% of German natural gas imports, multiple reports indicate.
The UK faces particular energy vulnerability and industrial damage. The UK imports about 70% of its gas, making it vulnerable to price swings, multiple reports indicate. British wholesale gas prices climbed as high as 171p a therm after the war began, up from 78p a therm at the end of February. The war is causing economic damage to energy-intensive industries in the UK and Europe, such as steel and chemicals, according to numerous sources. Somers Forge's monthly gas bill has soared from £150,000 to as high as £250,000 due to the war, according to Tammy Inglis. The chemicals sector in Britain has seen production output fall by 60% since 2021, with at least 25 sites closing, the Chemicals Industry Association reported.
The conflict has exposed global dependence on petrochemicals, which are made from oil and gas and used in many products. Petrochemicals account for 15%-16% of oil demand and are among the fastest-growing uses of fossil fuels, according to Fredric Bauer. The war has also caused environmental damage, including pollution from burning oil and gas fields, with over 400 environmentally concerning incidents recorded by the Conflict and Environment Observatory. Air pollution from the war, such as black rain near Tehran, poses health risks including lung and heart problems, experts say.
Fertilizer shortages are emerging, and Asian countries are shifting to coal. The war has led to fertilizer shortages, with urea prices up 50% and ammonia up 20% due to disruptions in the Strait of Hormuz, multiple reports indicate. Asian countries are turning to coal as the war disrupts oil and gas shipments, risking increased emissions and smog. India is burning more coal to meet higher summer demand due to the war, according to multiple reports. Indonesia, the world's largest exporter of thermal coal, is prioritizing domestic use over exports during the crisis, multiple reports indicate.
Global leaders are mounting emergency responses amid rising economic risks. Global leaders are releasing emergency oil reserves, such as 400 million barrels from the International Energy Agency, to ease oil prices, multiple reports indicate. The war has dredged up risks of stagflation, with higher inflation and lower global growth, according to Carmen Reinhart. Citing the Strait of Hormuz closure, India and Indonesia said they were seeking alternative energy supplies. In China, supply disruptions were causing some refineries to shut or push ahead maintenance plans.
Energy traders are facing severe logistical challenges, and industry players are responding. Energy traders are facing logistical challenges and risks in the physical market due to the crisis, according to industry sources. Commodity trading houses like Vitol, Trafigura, Glencore, Gunvor, and Mercuria are attempting to reroute disrupted energy supplies, multiple reports indicate. Vitol paid its traders an average of over $785,000 each in salary and bonuses after the 2022 energy crisis, multiple reports indicate.
Geopolitically, tensions between the U.S. and Iran remain high. Heightened tensions exist between Iran and the United States, with indirect talks ongoing and President Donald Trump warning that military strikes remain an option if diplomacy fails, according to research. The United States has expanded its military presence in the region, research indicates.
Iran has prepared contingency plans for potential war, according to reports. The New York Times cited Iranian officials as saying Tehran has prepared contingency plans in case of war with the United States or Israel, including scenarios where senior leaders like Supreme Leader Ali Khamenei could be killed. According to the report, Iran's contingency planning is designed to ensure continuity of the Islamic Republic under extreme circumstances, with senior figures like security chief Larijani, parliament speaker Mohammad Bagher Ghalibaf, and former president Hassan Rouhani named as part of that structure.
Internal power dynamics in Iran have been the subject of controversial reports. Le Figaro published a controversial account alleging that during nationwide protests, Khamenei was the target of an internal effort led by Rouhani to sideline him from crisis management. According to the French newspaper, Rouhani gathered political figures including former foreign minister Mohammad Javad Zarif, clerics from Qom, and individuals linked to the Revolutionary Guards to discuss an alternative leadership arrangement. Le Figaro said the effort ultimately failed, partly because Larijani did not support the initiative.
Iranian reactions to these reports have varied. Rouhani's office rejected Le Figaro's account, describing it as a US-Israeli fabrication aimed at creating doubt and concern in Iranian public opinion. Iranian media widely republished the New York Times and Le Figaro reports but mostly avoided detailed analysis, research indicates. The conservative newspaper Farhikhtegan dismissed the French report as a fictional scenario and a diverse basket of strategic lies, arguing such narratives were designed to undermine national cohesion. The news outlet Eghtesad24 suggested the New York Times report portrays Larijani as a crisis manager operating across multiple arenas, from nuclear diplomacy to regional strategy and wartime planning.
Leadership roles have shifted following recent conflicts. Following the 12-day war with Israel, Khamenei appointed Larijani as secretary of the Supreme National Security Council, despite the Guardian Council previously disqualifying him from running in the presidential election, research indicates. The report also suggested that Larijani's expanding role has reduced the visible influence of President Masoud Pezeshkian in day-to-day governance.
The broader geopolitical implications extend to Ukraine and Russia. The Swedish Armed Forces Chief, Michael Claesson, warns that a U.S. war in Iran could have consequences for Ukraine. Claesson also stated that rising oil prices could lead to Russia's war chest being replenished.
Amid the turmoil, a two-week ceasefire in the Iran war was announced, offering hope for reduced disruptions, according to multiple reports.