Amid intense exchanges of strikes between the United States and Israel on one side and Iran on the other, risks to the global economy are rising rapidly. The main flashpoint is the Strait of Hormuz. It runs along Iran’s southern coast and remains a critical route for transporting hydrocarbons from the Middle East. The threat of a blockade would almost automatically trigger a surge in oil prices; the only question is how high they would go and how long the spike would last. This article draws on analysis from the Financial Times and The Economist.
In what condition is the global economy entering this new major war in the Middle East?
Paradoxically, in relatively solid shape. At the beginning of the year, international organizations were forecasting global growth of around 3% and a gradual slowdown in inflation. Stock markets were reaching record highs despite tariff disputes and recurring geopolitical tensions. However, the attack on Iran, and especially the possibility of retaliation targeting regional energy infrastructure, introduces a fundamentally different kind of risk. Trade wars affect specific sectors; disruptions to oil supplies affect the entire economy, from transportation costs to supermarket prices.
Why is the Strait of Hormuz the key economic factor in this war?
Each day, around 15 to 17 million barrels of oil pass through the Strait of Hormuz, roughly one-fifth of global seaborne oil flows. Large volumes of liquefied natural gas also transit the strait. Even partial destabilization would prompt an immediate market reaction. Shipping costs would rise, insurers would increase premiums, and traders would price in a “risk premium.” A formal blockade is not even required: the mere threat, or a handful of targeted attacks on vessels, could be enough to drive prices sharply higher.
Is $100 per barrel likely?
Analysts outline two main scenarios.
The first assumes a severe and prolonged disruption of maritime traffic. In that case, Brent crude could quickly exceed $100 per barrel. Such a surge would represent a “colossal shock” for the global economy: inflation would accelerate, central banks’ plans to cut interest rates would be jeopardized, and stock markets could enter correction territory.
The second scenario assumes the strait remains open, but Iranian exports decline and logistics become more complicated. Prices could then stabilize in the $80–$90 range.
It is worth recalling that the market was only recently expecting an oversupply. In a matter of days, geopolitics has overturned those projections.
What will determine the scale of the increase?
First, the scope of the conflict. If strikes hit infrastructure in Saudi Arabia, the United Arab Emirates or Kuwait, a physical reduction in supply would become plausible.
Second, the ability to ensure safe navigation. The Strait of Hormuz has never been fully closed, even during the Iran–Iraq war. But it can become riskier and more expensive to transit.
Third, the political outcome in Tehran. A change of power and easing of sanctions could increase Iranian exports and stabilize the market. Conversely, if more hardline forces prevail, the risk premium could persist for years.
What impact would expensive oil have on major economies?
United States
The United States is far more energy-independent today than it was a decade ago. Nevertheless, global oil prices directly influence gasoline prices. A $10 increase per barrel typically translates into higher pump prices and faster inflation. If oil approaches $100, inflation could once again exceed the Federal Reserve’s targets. That would complicate interest rate cuts and weigh on growth. Another likely effect would be a stronger dollar, traditionally viewed as a safe-haven currency.
China and Asia
China is the largest importer of Gulf oil. More than 80% of flows through Hormuz are destined for Asian markets. Disruptions would increase production costs and put additional pressure on industry. For China, this means both a risk of economic slowdown and a stronger incentive to further diversify supply routes and partners.
Europe
Europe is particularly vulnerable through the gas and refined products markets. Higher energy prices could slow the economic recovery and reignite inflationary pressures. Even if inflation is currently moderate, an energy shock could alter the trajectory of monetary policy.
Russia
Russia benefits in the short term from higher prices. Rising global benchmarks make exports easier, despite sanctions, and partly offset the discounts applied to its crude. However, prolonged instability in the Middle East increases overall uncertainty, which ultimately restrains investment and global demand over the longer term.
