The United States-Israeli war on Iran and Tehran’s retaliatory strikes across the Gulf region have upended global financial and energy markets, raising concerns of a global economic crisis – and even of a recession.
Here’s a look at tell-tale signs that reveal the global economic fallout from this war:
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Energy prices
Since the US-Israeli strikes on Iran began on February 28, Tehran has launched a wave of ballistic missiles targeting Israel, US military bases, oil depots and other infrastructure across the Gulf region.
Iranian attacks on several vessels passing through the Strait of Hormuz have also dramatically reduced traffic in the narrow channel, through which about 20 percent of global oil and gas supplies transit. On Thursday, Iran also attacked fuel tankers in Iraqi waters.
All of this has combined to send oil prices soaring. As of Monday morning, Brent crude, the industry benchmark, was priced at $106 per barrel, up more than 40 percent from $72 per barrel on February 27.
According to Muyu Xu, a senior crude oil analyst at Kpler, liquified natural gas (LNG) prices have risen even more sharply – by almost 60 percent – since the start of the war.
On March 2, QatarEnergy suspended its LNG production after an Iranian drone attack, straining the global LNG market. Qatar supplies 20 percent of the world’s LNG.
Prices of refined products from petrol and gas oil to jet kerosene and fuel oil have also seen significant increases, and that trend is expected to continue if energy flows through the Strait of Hormuz remain largely shut, Muyu added.
“As crude oil and refined products from the Middle East Gulf are unable to reach buyers, countries, particularly in Asia, are scrambling to secure alternative supplies at higher prices and adopt emergency measures to manage inventories and demand,” she told Al Jazeera.
About 84 percent of the crude oil and 83 percent of the LNG that passed through the strait in 2024 was bound for Asia, according to data from the US Energy Information Administration.
China, India, Japan and South Korea accounted for nearly 70 percent of those oil shipments with about 15 percent bound for the rest of Asia, according to the agency.
According to a March 9 report by Neil Shearing and his team of economists at the global macroeconomic firm Capital Economics, if the conflict is short-lived and Iranian attacks on the Gulf countries and in the Strait of Hormuz cease, “oil and LNG prices would fall back sharply with the price of Brent crude reaching $65pb [per barrel] by the end of the year.”
But in case of a longer war, the report noted: “Oil prices would rise further during the conflict to around $130pb in Q2 [second quarter]. … Shipments through the Strait of Hormuz would resume in Q2 although prices remain higher than in the first scenario by year end.”
“Even if the conflict is contained to three months, we think Brent crude oil prices could rise to an average of $150pb over the next six months or so,” the economists forecasted.
Lower productivity
As import costs for energy-guzzling economies are rising, their economic productivity is also beginning to decline.
According to data analysed from Global Petrol Prices, a data platform that tracks and publishes retail energy prices across about 150 countries, at least 85 countries have reported increases in petrol prices since February 28. Some nations announce price changes only at the end of each month, so higher prices are expected for many others in April.
So far, Cambodia has recorded the highest petrol price increase of nearly 68 percent, rising from $1.11 per litre (a quarter of a gallon) of 95 octane on February 23 to $1.32 on Wednesday. Vietnam follows with a 50 percent increase, then Nigeria at 35 percent, Laos at 33 percent and Canada at 28 percent.
These price increases at the pump have led governments to take drastic steps to conserve fuel.
Pakistan has introduced a four-day workweek for government employees with 50 percent of the staff working from home on rotation. Government offices in the Philippines have moved to a four-day workweek too. Thailand has made work from home mandatory for government officials.
Myanmar’s government has imposed a rule under which cars may drive only on alternate days. In Sri Lanka, vehicle owners must register online to buy fuel, then use a QR code at the pump to purchase petrol or diesel. The move is aimed at regulating how much each individual consumer buys.
All of this, economists said, impacts the productivity of economies. They manufacture less and deliver fewer services, further deepening the economic crisis.
And this is just the start.
Muyu noted that shipowners are also hesitating to take new orders as bunkering prices hit new highs every day. “They worry that the freight rates they receive may not be sufficient to cover rising fuel costs,” she said.
“The economic impact of the Strait of Hormuz closure is only beginning to emerge. In the coming weeks, we are expecting to see further evidence of rising fuel prices, restrained demand [such as less driving or rationing] and eventually the effects filtering through to macroeconomic indicators such as inflation,” she warned.
Stock markets
According to a report on Sunday from Bloomberg News, global stocks have fallen 5.5 percent since the war began with Asian stock markets being the worst hit.
Here’s how the 10 biggest stock exchanges have performed since February 28:
- New York Stock Exchange (NYSE): As of Monday morning, the NYSE Composite Index had fallen by 6 percent compared with the close on February 27.
- Nasdaq Stock Market: Shares trading on this barometer of tech stocks had fallen by 2.4 percent in the same timeframe.
- Shanghai Stock Exchange: As of Monday, the Shanghai Composite Index has fallen by 1.86 percent since February 28.
- Tokyo Stock Exchange: Also as of Monday, the Japan Nikkei 225 index has fallen by 11 percent since February 28.
- National Stock Exchange of India: The Nifty50, the benchmark index of India’s largest stock exchange, has fallen by 7 percent since February 28.
- Hong Kong Stock Exchange: As of Monday, the Hang Seng Index has fallen by about 4 per cent since the start of the war.
- London Stock Exchange: London’s FTSE 100 has fallen by 5.3 percent since the war began.
- Saudi Exchange (Tadawul): The Tadawul All-Share Index has been down by 9.6 percent since February 28.
- Euronext: Europe’s STOXX 600 has fallen by 6 percent since the war began.
- Australian Stock Exchange: As of mid-March, the ASX has fallen more than 6 percent due to the war.
Frederic Schneider, a nonresident senior fellow at the Middle East Council on Global Affairs, said Asian and other stock markets falling more than the US reflects their larger exposure to the energy crisis. It is also reflective of the fact that the US remains a global anchor market and many of the corporate winners of the war, including defence and oil corporations, are based in the US.
Russian stocks, meanwhile, have trended upwards as “Russia is a major non-Gulf hydrocarbon supplier standing to benefit from the war,” he added.
Inflation and stagflation fears
Last week, the International Monetary Fund’s managing director, Kristalina Georgieva, warned that if the war is prolonged, it poses an inflationary risk on the global economy.
“We are seeing resilience tested again by the new conflict in the Middle East,” Georgieva said on March 9 at a symposium hosted by Japan’s Ministry of Finance while warning policymakers to be prepared for it.
Oil price shocks have also historically summoned stagflation – increasing inflation coupled with rising unemployment. Economists pointed to the crises of 1973, 1978 and 2008 as evidence that every significant spike in oil prices has been followed in some form by a global recession.
Schneider at the Middle East Council on Global Affairs warned that debt-ridden Global South countries may face a debt crisis if interest rates are hiked in the Global North to combat inflation.
But Schneider highlighted that China is more insulated against the economic fallout of this war because it has overseen a large-scale energy diversification campaign over recent years, making enormous investments in renewables, nuclear power and coal; diversifying its hydrocarbon suppliers; and amassing a huge strategic reserve.
“China has also largely internalised supply networks, minimising disruptions. But as an export nation, China’s economic health will suffer from a global economic downturn,” he added.
In the West, Schneider said Europe is feeling the economic impact of the war because the continent had already been cut off from Russian hydrocarbons through attacks on the Nord Stream gas pipelines and sanctions on Russia.
“Europe’s industries are already strained by high energy costs, and this war is definitely putting another stressor on top in an economy that has been suffering from long-term declining growth,” he said.
As for the US, he said, the country is energy self-sufficient, but petrol prices are a flashpoint of public discontent.
“Just as with food prices, they hit disadvantaged parts of the population harder. Farmers, a vocal constituency in the US, are also hit by energy and fertiliser prices, which are large cost factors, after already having suffered from Trump’s trade wars. Furthermore, the US energy grid has already been strained by the AI boom. All of this combines during a midterm election year,” he added.
GDP growth rate
Shearing and his team of economists at Capital Economics have forecasted in their report that if the war ends in a few weeks, “outside the Gulf economies, the impact on GDP (Gross Domestic Product), inflation and monetary policy will be limited.”
“Economies in Asia and Europe are most exposed, but we would not envisage making major changes to forecasts. The only central banks to hike interest rates in response to the crisis are likely to be those in EMs (emerging markets) with fragile balance sheets (example: Turkey, Pakistan).”
In case the war continues for several months, however, the economists predicted that the macroeconomic consequences would be more significant.
“GDP growth in the euro-zone is likely to slow to just 0.5 percent y/y (year on year)” in the second half of the year while “economic growth in China is likely to fall below 3 percent y/y (year on year).”
The economists predicted the US would outperform other economies by growing by 2.25 percent in 2026.
“Inflation peaks at over 4 percent year on year in the euro-zone, 3 percent year on year in the US and 2.5 percent year on year in Japan,” they forecasted and added that this would lead to the European Central Bank raising interest rates and the Bank of Japan tightening its policy.
Travel and aviation impacts
The war has not only sent oil prices surging but has also upended global travel, pushing airline ticket costs on some routes sky-high.
More than two weeks into the conflict, the Gulf’s biggest carriers are still struggling to return to pre-war flight volumes with airspaces either shut or operating under major restrictions with a persistent threat of missiles and drones.
But it isn’t just these airlines that have been affected.
Australia’s Qantas Airways, Scandinavia’s SAS, Air New Zealand and India’s two biggest carriers, IndiGo and Air India, have all announced airfare hikes, blaming an abrupt spike in the cost of fuel on the war.
Jet fuel prices, which were about $85 to $90 per barrel before the attacks on Iran, have soared to $150 to $200 a barrel, New Zealand’s flag carrier said last week.
Several Asian and European airlines, including Lufthansa and Ryanair, have oil hedging in place, securing a part of their fuel supplies at fixed prices. Oil hedging is the process of locking in the price of oil to buy or sell the commodity in the future.
Flights from Asia and Australia towards Europe and the US have also been taking longer flights to avoid the Gulf due to airspace closures in the region. This has further bumped up airline ticket prices.
Schneider noted that the airline rerouting is not good news for European airlines, which are already shut off from Russian airspace, making flights to Asia even longer and costlier.
“This crisis could also spill over into the rest of the year with a dampened tourism outlook and a potential cost-of-living crisis,” he said.
