The United States and Israel’s war on Iran entered its second week on Saturday, with the escalating conflict already sending ripples through global energy markets and raising concerns about a wider economic slowdown. Iran’s closure of the Strait of Hormuz, a critical waterway for global oil transport, and attacks on energy infrastructure in Qatar and Saudi Arabia have significantly disrupted energy supplies.
According to ship tracker MarineTraffic, traffic through the Strait of Hormuz is down approximately 90 percent compared to normal levels. 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.
Brent crude oil hovered around $84 a barrel on Friday morning, US time, a roughly 15 percent increase from pre-conflict prices. While this increase is substantial, it remains lower than the surges experienced during the 1973-74 oil embargo, when prices quadrupled in three months. The US is currently the world’s largest oil producer, outputting approximately 13 million barrels per day, exceeding the combined production of Iran, Iraq, and the UAE.
Despite current US production levels, analysts warn that prolonged disruptions could lead to a precipitous rise in oil prices. JPMorgan Chase estimates that Gulf nations could exhaust their crude oil storage capacity within a month if the Strait of Hormuz remains closed. Sarah Schiffling, a supply chains expert at the Hanken School of Economics in Helsinki, emphasized the difficulty of replacing the roughly 20 million barrels of oil per day that typically transit the strait.
Goldman Sachs analysts predict global oil prices could reach $100 a barrel if shipping through the strait remains curtailed for five weeks. Qatar’s energy minister, Saad al-Kaabi, warned in a recent interview with the Financial Times that producers in the region could halt production within days, potentially driving prices as high as $150 a barrel.
The International Monetary Fund has estimated that global economic growth decreases by 0.15 percent for every 10 percent increase in oil prices. The impact of rising energy costs is expected to be particularly acute in Asia, which receives approximately 80 percent of the oil shipped through the strait. India, Japan, South Korea, and the Philippines are identified as economies particularly vulnerable to price spikes in essential goods.
Liquefied natural gas (LNG) prices have already seen steeper increases than crude oil. European LNG prices surged by as much as 50 percent on Monday following drone attacks blamed on Iran that led to a production halt at QatarEnergy, which ships about one-fifth of global LNG supply through the strait.
US President Donald Trump has indicated his intention to continue military operations against Iran for several weeks. He announced on Wednesday that the US International Development Finance Corporation would begin insuring shipping lines in the region to maintain trade flow, and stated the US Navy could begin escorting vessels through the strait if necessary.
Lutz Kilian, an economist at the Federal Reserve Bank of Dallas, suggested that the global economy may withstand the conflict without a recession if Israel and the US can effectively suppress Iranian attacks in the strait, maintain insurance for shippers, and ensure continued oil tanker passage. However, he cautioned that a severe disruption of oil traffic would lead to escalating economic costs the longer it persists.
As of Friday, the Biden administration had not issued a statement regarding Qatar’s warning of potential production halts or the possibility of $150 per barrel oil. The White House has not responded to requests for comment on the long-term strategy for securing the Strait of Hormuz beyond the announced insurance and potential naval escorts.
