The ongoing conflict between the United States, Israel, and Iran has exposed just how fragile the global economy can be when a single geographic chokepoint is disrupted. At the centre of this crisis lies the Strait of Hormuz, a narrow 39km-wide passage connecting the Persian Gulf to the open ocean.
Impact on Oil and Natural Gas Prices
Before the conflict, roughly 20% of the world’s oil supply passed through this strait every single day. Middle Eastern producers who are responsible for 48% of global oil supplies, such as Saudi Arabia, Iraq, and Qatar, depend almost entirely on it to export their energy resources. With Iran effectively shutting down this route through military action, global oil flows have been severely disrupted. Not only has this closure left hundreds of tankers stranded either side of the strait but it has also caused storage capacity to fill up, forcing producers to cut oil production. Compounded with Iranian attacks on Gulf energy infrastructure in surrounding countries, the result has been a dramatic spike in oil prices, reaching around $119 per barrel, sending shockwaves through supply chains worldwide. This is not just an “oil problem.” Oil is deeply embedded in nearly every aspect of modern life, from transport to manufacturing. When oil prices rise, so do the costs of producing and transporting goods. Firms pass these increased costs onto consumers, leading to cost-push inflation. For households, this translates into higher fuel prices, more expensive groceries, and rising energy bills.
Effects on the Global Economy
The impact has been most acutely felt in Asia, where economies rely heavily on Middle Eastern energy. With around 80% of the region’s oil imports passing through the Strait of Hormuz, governments have been forced to take emergency measures. The Philippines has put government workers on a 4 day working week to cut energy use and South Korea has imposed a cap on fuel prices for the first time in three decades to name a few. However, the economic impacts of the war are likely to roll out sequentially rather than simultaneously. Soon, even countries like the UK and those in the EU that are less dependent on Middle Eastern oil will feel the effects, as oil is a globally traded commodity. As production costs rise in Asia, the price of imported goods increases globally. This interconnectedness means that a disruption in one region quickly becomes a worldwide economic issue.
Impact on Food Security
Beyond energy, the crisis is also destabilising global food systems. Fertiliser production depends heavily on natural gas, making the Middle East a crucial producer with ⅓ of global seaborne fertilisers passing through the Strait of Hormuz. With supplies disrupted, farmers face higher costs and shortages just as the spring planting season begins in the Northern Hemisphere.
The consequences are stark: lower crop yields, rising food prices, and worsening food insecurity. In fact, the number of people facing acute hunger is projected to increase by 45 million from a pre conflict baseline of 318 million if conflict continues through the second quarter of the year.
Impacts on the Technological Industries
Less obvious, but equally concerning, is the impact on the technology sector. Helium is needed in several stages in the manufacture of semiconductors and microchips that power modern electronics. As helium is a by-product of natural gas processing, major gas producer Qatar also produces ⅓ global helium supply which is shipped out through the Strait of Hormuz. Therefore, the war induced helium shortage has posed a significant risk to global tech supply chains. If the industry continues to face relentless AI driven chip demand, the stored and pre shipped helium supplies that companies like Samsung have will soon run out having devastating impacts on the tech market.
Long-term Consequences
Even if the conflict were to resolve soon, recovering from this crisis will be challenging. Damage to energy infrastructure could take up to 5 years to repair and would reduce production capacity in the near future. Additionally, the damage done to global food systems due to missed planting opportunities will result in sustained higher food prices.
Ultimately, this crisis underscores vulnerabilities in the global economy, particularly our dependency on oil and gas but also on critical waterways for global trade.