Global energy supplies have declined due to the American-Israeli attacks on Iranian oil facilities, the Iranian closure of the Strait of Hormuz, and the Iranian attacks on Arab Gulf oil facilities.
This is the largest ever disruption of global oil markets in history, according to world-famous oil expert Daniel Yergin, as the world has now lost 20 per cent of its oil supplies and 20 per cent of its supplies of liquified natural gas (LNG).
The markets are reacting to this mix of supply cuts and anticipated war and political risks. Before the conflict, there was a surplus in oil supplies, and oil stood at about $60 per barrel. Due to the conflict, oil has briefly been as high as $115 per barrel, which it reached on 9 March.
This was the largest overnight increase in oil prices over the last six years, and the first time it had reached such levels since the Russian invasion of Ukraine in 2022. It had fallen back to about $108 at the time of writing, but the risk is still present that oil prices could reach even higher levels.
According to US investment bank Goldman Sachs, a month-long disruption of oil supplies could lead to oil prices exceeding the all-time record high of $145 a barrel. Three months of disruption could see prices rise to $185 per barrel, with severe consequences for the global economy.
The price of petrol at the pump has also been affected. In the United States, the average national petrol price has risen from $2.90 per gallon a week ago to more than $3.40 per gallon today.
The global oil and gas industry is not the only industry affected by the war, as international commerce has been affected as well. It is not just oil tankers that are trapped on both sides of the Strait of Hormuz, but also cargo ships and commodity containers passing through it.
Ships carrying different commodities to and from the Gulf have been trapped. Farmers around the world may also be negatively affected, as about 35 per cent of the world’s fertilisers pass through the Strait of Hormuz, which could lead to a rise in food prices.
Because of the sudden nature of the conflict, and because the United States did not coordinate with insurance companies, the latter are effectively withdrawing their insurance from global shipping.
US President Donald Trump has talked about convoy operations for ships passing through the Strait of Hormuz. But this would be difficult, and the US Navy does not have the assets to perform such an operation.
There are currently 700 ships stuck in the Strait of Hormuz and escorting them through it would not be enough as they would need to be convoyed up to Kuwait or Iraq, over 500 miles away.
Meanwhile, some ships have managed to go through the Strait by turning off their signals and their automatic identification systems.
A major fear is that a prolonged war could lead to global stagflation, a combination of inflation and slow economic growth. Global inflation would be due to the rise in oil and gas prices, leading to an overall increase in the cost of doing business. This would be combined with a slow-down in global economic performance.
According to the International Monetary Fund (IMF), a 10 per cent increase in oil prices could slow down global economic growth by three per cent. According to David Bassanese, chief economist at BetaShares, an Australian fund-management company, the global economy will experience slower growth and higher prices, even if Trump ends the war soon, because oil prices will not decline to their low levels of January 2026.
Traders will charge a premium to cover the risk of a renewed “on-again, off-again” conflict.
Ministers from the G8 group of countries are due to meet soon to discuss a possible release of oil reserves. This would help to reduce oil prices a little, but the real risk would still be the closure of the Strait of Hormuz.
Fitch, the global credit rating company, expects that the closure of the Strait of Hormuz will be temporary, regardless of the duration of the conflict.
One big unknown, however, is the extent of the damage to actual oil supplies. Global oil reserves stand at 8.2 billion barrels, which could cover the closure of the Strait of Hormuz for about 400 days.
Washington has lifted some sanctions from Russian oil to allow Moscow to sell oil in the international market to relieve prices. But it is unclear how far such movements will relieve the international economy.
It is not known how long the war will continue, especially since Washington and Tel Aviv have different agendas. Israeli Prime Minister Benjamin Netanyahu aims for regime change in Iran, while Trump has not stated a clear goal and has oscillated from regime change to eliminating Iran’s nuclear programme to protecting protesters in Iran.
The fact that Washington does not have clear goals means that it is not clear when it will decide that it is time to end the conflict. Furthermore, the goal of regime change in Iran cannot be achieved by air power alone, which will need soldiers on the ground.
Israel and the United States have been so far unwilling to deploy these, though Trump has said that he will consider boots on the ground.
Another big unknown is the extent to which Iran is willing to use the cards it possesses to disrupt the global economy and global security as the regime in Tehran defends itself against an existential threat.
Iran has closed the Strait of Hormuz, disrupting global energy shipments. But there are many other cards Iran could play if the American-Israeli offensive does not end soon.
It could activate its terrorist sleeper cells in various European countries. It could also attack desalination plants in the Arab Gulf states, which provide water to these countries.
Desalinated water provides 42 per cent of the drinking water in the UAE, 86 per cent in Oman, 90 per cent in Kuwait, and 70 per cent in Saudi Arabia. Iran is also dependent on desalination plants, but not as much as the Arab Gulf states, although it has been suffering from water shortages for the past few years.
Attacking the plants would be a major escalation of the conflict. On Saturday, Iran’s foreign minister accused the United States of attacking a desalination plant on Qeshm Island in Iran, which was denied by the US government. On Monday, Bahrain accused Iran of attacking a desalination plant, but Iran denied it.
The global economy will have to prepare itself for a period of stagflation and high-risk insurance premiums, whether the war ends soon or not.
* A version of this article appears in print in the 12 March, 2026 edition of Al-Ahram Weekly
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