The United States-Israeli war on Iran and Tehran's retaliatory strikes have upended global financial and energy markets, raising concerns of a global economic crisis or recession, according to research from five sources. Since the US-Israeli strikes on Iran began on February 28, Tehran has launched ballistic missiles targeting Israel, US military bases, oil depots, and infrastructure across the Gulf region, research from five sources indicates. This escalation has triggered the largest supply disruption in the history of the global oil market, according to the International Energy Agency, with the impact echoing the 1970s energy crisis through supply shortages, currency volatility, inflation, and risks of stagflation and recession, per research from five sources.
Immediate impacts include a dramatic reduction in traffic through the Strait of Hormuz, through which about 20% of global oil and gas supplies transit, due to Iranian attacks on vessels, research from five sources reports. As of Monday morning, Brent crude was priced at $106 per barrel, up more than 40% from $72 per barrel on February 27, according to research from five sources. LNG prices have risen almost 60% since the start of the war, said Muyu Xu, a senior crude oil analyst at Kpler, and on March 2, QatarEnergy suspended its LNG production after an Iranian drone attack, straining the global LNG market, research from five sources confirms.
Asian economies are heavily exposed, with about 84% of crude oil and 83% of LNG that passed through the Strait of Hormuz in 2024 bound for Asia, according to data from the US Energy Information Administration. 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, the agency reports. Regional economic fallout is already evident, as the UNDP estimates Lebanon will suffer a 9.2% loss of GDP this year, and Egypt has suffered revenue losses of billions per year due to decreased traffic in the Suez Canal.
Contradictory market views exist on the conflict's price impact. If the conflict is short-lived, oil and LNG prices would fall back sharply with Brent crude reaching $65 per barrel by year-end, according to a March 9 report by Neil Shearing and his team at Capital Economics. In case of a longer war, oil prices would rise further to around $130 per barrel in Q2, the same report notes. However, some analysts argue there is consensus among oil market participants that the correlation of oil price to Middle East regional risk is broken, with prices remaining stable despite conflict escalation since October 7, 2023, and the market has demonstrated understanding of energy infrastructure risk rather than broader political risk, with supply availability from non-OPEC and North American production maintaining price stability.
Several factors may limit price effects. Direct strikes on Israel and Iran have not severely affected the physical assets of oil and its transport and delivery, and despite Houthi threats, oil shipments have found workarounds in longer transport routes, with marginal effects on energy products and tradeable goods. Israel's gas exports to Egypt and production in offshore fields have remained resilient, with Israeli energy infrastructure intact. Without direct attacks on Iran's oil infrastructure, heavy sanctions have not prevented Iran from meeting customer needs, with exports estimated at 1.7 million barrels per day in 2024.
Long-term projections from the World Bank's Commodity Markets Outlook suggest global commodity prices are set to tumble to a five-year low in 2025 amid an oil glut that may limit price effects even of a wider Middle East conflict. 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 twice before in 2020 and 1998. From 2024 through 2026, global commodity prices are projected to plummet by nearly 10%, with energy prices expected to drop by 6% in 2025 and an additional 2% in 2026. 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.
China's slowing demand and OPEC+ spare capacity serve as additional mitigating factors. China's oil demand has essentially flatlined since 2023 amid industrial slowdown and increased electric vehicle and LNG truck sales, research from five sources indicates. OPEC+ maintains significant spare capacity of 7 million barrels per day, almost double the amount in 2019, according to research from five sources.
A worst-case scenario involves the Strait of Hormuz closure causing a historic supply shock. Following the closure of the Strait of Hormuz on 4 March 2026, oil and LNG exports were stranded, causing Brent Crude to surge past $120 per barrel, research from five sources reports. Oil production of Kuwait, Iraq, Saudi Arabia, and UAE collectively dropped by a reported 6.7 million barrels per day by 10 March, and by at least 10 million barrels per day as of 12 March, according to research from five sources.
This maritime blockade triggered a humanitarian and food security crisis in Gulf states. It caused a grocery supply emergency across Gulf Cooperation Council states, disrupting 70% of food imports by mid-March and causing a 40-120% spike in consumer prices, research from five sources indicates. Gulf Cooperation Council states rely on the Strait for over 80% of their caloric intake, per research from five sources.
Broader economic implications include stagflation risks and echoes of the 1970s crisis, as the impact involves supply shortages, currency volatility, inflation, and risks of stagflation and recession, according to research from five sources.
Regional fragility has been exposed, with the conflict shaking the region's image as a safe destination for expatriates, immigrants, and tourists, exposing fragility beneath rapid economic transformation, according to the Qatar-funded Middle East Council on Global Affairs.
Contextually, the Middle East's economy is fragmented, with poor regional integration of trade and investment.
Key unknowns remain, including the current status of the Strait of Hormuz—whether it is open, partially closed, or fully closed—and the exact level of traffic reduction. It is also unclear how long QatarEnergy's LNG production suspension will last and the timeline for resuming exports, as well as what specific measures are being taken to secure alternative oil and LNG supply routes and their effectiveness.
Further unknowns include the exact extent of damage to oil infrastructure in the Gulf region from recent attacks, and how governments and central banks are planning to address potential stagflation or recession risks stemming from the conflict.
In a peripheral human interest element, the YouTube star PewDiePie has experienced stock market fluctuations, with the stock market going up and down, and he lost 10 million kronor in the stock market.