US-Iran Conflict: Economic Fallout and Rising Energy Prices
As the United States and Israel’s war on Iran unfolds, the scale of the fallout for the global economy will be measured, in part, at the petrol pump. The biggest threat the conflict poses to global economic health lies in rising energy prices.
Disruption of Global Energy Supply
Iran’s potential closure of the Strait of Hormuz and attacks on energy production facilities in Qatar and Saudi Arabia have paralyzed a substantial portion of the world’s energy supply. For a global economy already facing challenges, the duration of this disruption is critical.
Impact on Oil Prices
While Iran’s threats to shipping have reduced traffic through the Strait of Hormuz, crude prices have seen relatively modest gains so far. As of Friday morning, March 7, 2026, Brent crude hovered around $84 a barrel, up approximately 15 percent compared to pre-conflict prices (ABC News). This increase, but, pales in comparison to past crises, such as the 1973-74 oil embargo, where prices quadrupled in three months.
Shifting Global Oil Dependence
The world’s dependence on Middle Eastern oil has declined substantially since the 1970s. The US is now the biggest producer globally, generating around 13 million barrels a day, exceeding the combined output of Iran, Iraq, and the UAE (NBC Chicago).
Storage Capacity Constraints
Gulf nations – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – may exhaust their crude oil storage capacity within a month if the Strait of Hormuz remains closed, according to an analysis by JPMorgan Chase. Depleted storage would force producers to cut production. Sarah Schiffling, a supply chains expert at the Hanken School of Economics in Helsinki, notes that replacing the volume of oil typically crossing the Strait of Hormuz (approximately 20 million barrels per day) is “incredibly difficult” (Al Jazeera).
Price Projections and Potential Soaring Costs
Goldman Sachs analysts estimate global oil prices could reach $100 a barrel if shipping through the Strait of Hormuz remains restricted for five weeks. Qatar’s energy minister, Saad al-Kaabi, warned that oil prices could soar to $150 a barrel if production halts in the region (ABC News).
Broader Economic Impact
The International Monetary Fund estimates that global economic growth decreases by 0.15 percent for every 10 percent rise in oil prices. Approximately 80 percent of the oil shipped through the strait is destined for Asia, making India, Japan, South Korea, and the Philippines particularly vulnerable to price spikes (NBC Chicago).
Liquefied Natural Gas (LNG) Concerns
Liquefied natural gas (LNG) prices have risen more steeply than crude oil, as it has fewer alternative suppliers outside the region. European LNG prices surged by as much as 50 percent after QatarEnergy, which ships about one-fifth of global supply through the waterway, halted production following drone attacks (Al Jazeera).
Uncertainty and Future Outlook
With US President Donald Trump signaling a continued assault on Iran, the extent to which Tehran will preserve the strait closed is critical. At least nine commercial vessels have been targeted in attacks in or near the strait, prompting insurance firms to cancel coverage for vessels in the Gulf (Al Jazeera). While traffic hasn’t halted, it’s down about 90 percent compared to normal levels. Trump has ordered the US International Development Finance Corporation to insure shipping lines and indicated the Navy could escort vessels if necessary.
As Lutz Kilian, an economist at the Federal Reserve Bank of Dallas, suggests, the global economy may weather this war without a recession if Israel and the US can suppress Iranian attacks and maintain oil tanker traffic, with US insurance backing shippers. However, a severe disruption of oil traffic will lead to growing economic costs the longer it lasts.