Iran War and the Global Economy: Is a Crisis Still Coming?

Despite the months-long blockade of the Strait of Hormuz, oil prices peaked at roughly $113 per barrel in early April before settling around $85.

Regional Economic Impacts and Business Resilience

WIFO revised its Austrian growth forecast down slightly from 1.2 percent to 1.0 percent for the year. Scheiblecker noted that without the war, Austria's economy would expand significantly stronger, particularly by 2027. Businesses and households have adapted to recurring macroeconomic shocks following the COVID-19 pandemic, the war in Ukraine, and ongoing trade conflicts, according to Scheiblecker, who observed that while uncertainty typically suppresses investment and consumer spending, prolonged uncertainty eventually forces entities to proceed with delayed investments.

Mitigating Factors in Global Markets

Global economic stability amid the Strait of Hormuz disruption was supported by unexpected energy reserves and strong technological sector expansion. China, as the world’s largest net importer of oil, maintained larger reserves than anticipated and pivoted back toward coal consumption, sharply reducing its post-conflict oil demand and preventing a severe price spike, according to Rolf Langhammer, an economist at the Kiel Institute for the World Economy (IfW). Furthermore, massive capital flows into the technology sector driven by artificial intelligence advancements helped propel global economic growth despite geopolitical headwinds, Langhammer told the press.

The economic fallout remains sharply uneven across different regions. Energy-exporting and energy-autarkic nations benefit from elevated energy prices, while countries with strong artificial intelligence sectors profit from growth expectations, according to Langhammer. Conversely, poorer countries reliant on oil imports that lack exposure to the artificial intelligence boom face the steepest losses, carrying heightened risks of new conflicts and migration waves.

Ongoing Risks and Financial Stability

As the conflict approaches the six-month mark, the duration of the Strait of Hormuz blockade and the geographic containment of the conflict remain critical factors for the global economy. Even a prolonged blockade is unlikely to completely dry up the oil market or drive prices to $200 per barrel, as rising prices naturally suppress demand, and Gulf states retain the ability to export a portion of their production through alternative pipelines and routes, albeit at higher costs and with limited capacity, according to WIFO economist Scheiblecker. A primary risk involves a potential expansion of hostilities to the Red Sea, where up to 15 percent of global maritime trade passes and Houthi forces based in Yemen have repeatedly targeted commercial vessels, threatening a major increase in transport costs through the Bab al-Mandab strait.

Beyond the Middle East, experts identify mounting risks within the United States economy, where military spending related to the conflict has pushed national debt past the $40 billion threshold. If artificial intelligence investments fail to meet high expectations, technology equities could suffer sharp declines and investments could plunge. Combined with escalating concerns over US fiscal deficits, such a downturn could generate severe stress in the global financial system, according to IfW economist Langhammer.