The military conflict between the United States, Israel, and Iran poses a severe threat to the global economy, primarily through the risk of a sharp spike in energy prices. The Iranian government's effective closure of the Strait of Hormuz and attacks on key energy facilities in Qatar and Saudi Arabia have paralyzed a substantial portion of the world's energy supply. The global economy, already rattled by US President Donald Trump's tariff policies and what many see as his unravelling of the post-World War II order, now heavily depends on the duration of these disruptions.

Analysts warn that a sustained surge in energy prices would drive up the cost of everyday goods, likely forcing central banks to raise borrowing costs to curb inflation, thereby dampening consumer spending and dragging down economic growth. Anne-Sophie Corbeau, an analyst at Columbia University's Center on Global Energy Policy, stated: "It's really a question of how long the disruption of flows through the Strait of Hormuz lasts and whether there will be destruction of physical assets. For the moment, the market is pricing a short disruption and no destruction. But that may change in the future. We simply do not know right now how this whole crisis ends."

The Strait of Hormuz is a conduit for one-fifth of the world's oil, yet crude prices have seen relatively modest gains so far. According to a JPMorgan Chase analysis, if the strait remains closed, the seven oil-producing Gulf nations (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) could run out of crude oil storage capacity in less than a month. Sarah Schiffling, a supply chains expert at the Hanken School of Economics in Helsinki, noted: "This important maritime chokepoint provides very significant leverage in the global economy."

Goldman Sachs analysts estimated that global oil prices will likely hit $100 a barrel—a threshold not seen since Russia's 2022 invasion of Ukraine—if shipping through the waterway stays at current reduced levels for five weeks. Qatar's energy minister Saad al-Kaabi warned that producers in the region could halt production within days and that oil could soar as high as $150 a barrel. The International Monetary Fund has estimated that every 10 percent rise in oil prices reduces global economic growth by 0.15 percent.

The pain would be felt most acutely in Asian economies, as about 80 percent of the oil shipped through the strait goes to Asia. Countries like India, Japan, South Korea, and the Philippines, which are highly dependent on foreign energy imports, would be among the most vulnerable to spikes in the cost of necessities such as food and fuel. Lutz Kilian, an economist at the Federal Reserve Bank of Dallas, said: "The effect would be felt in Asia and Europe in particular. Some countries, such as China, have ample oil reserves to help weather a temporary outage, while others do not."

Liquefied natural gas (LNG) prices, which are also shipped through the strait and have fewer alternative suppliers outside the region than crude oil, have already seen much steeper rises. European LNG prices surged by as much as 50 percent after state-run QatarEnergy, which ships about one-fifth of global supply through the waterway, announced a halt to production following drone attacks blamed on Iran. Corbeau added: "Gas will be more impacted because the market was still relatively tight and stocks are low in Europe as we are at the end of winter; also, there is no replacement for the LNG lost."

The continuation of the war and the strait's closure will be critical to the global economy. At least nine commercial vessels have been targeted in attacks in or near the strait since the conflict began, prompting multiple insurance firms to cancel coverage for vessels in the Gulf. According to ship tracker MarineTraffic, traffic through the strait is down about 90 percent compared with normal levels. Schiffling emphasized: "The uncertainty itself is probably the most dangerous part. Supply chains hate uncertainty. It is possible to plan for almost anything, but not knowing what will happen makes it really challenging to adapt operations."

US President Donald Trump said he had ordered the US International Development Finance Corporation to start insuring shipping lines in the region to keep trade flowing and that the US Navy could begin escorting vessels through the strait if necessary. Kilian concluded: "As long as Israel and the US are able to suppress Iranian drone and missile attacks in the strait to the point that the bulk of the oil tankers gets through, and as long as the United States provides back-up insurance for shippers and their cargo, the global economy may make it through this war without a recession. On the other hand, if there is a severe disruption of oil traffic, the economic costs will grow the longer the disruption lasts."

Source: www.aljazeera.com