As the US-Israel war on Iran has entered its second phase, the initially seeming strength of the global market has all but collapsed, as the strikes to the global economy have been significant, with both countries also sharing a good deal of the financial damage.
Striking at the leadership and infrastructure of a country of around 90 million people, with significant military capacity and positioned at the centre of several of the world’s most critical supply routes, inevitably carries economic consequences that may take weeks or months to fully emerge.
Those consequences are already beginning to surface. Oil prices surged sharply at the start of the week, jumping about 25 per cent overnight to nearly USD 120 a barrel before easing slightly. The spike pushed prices to their highest level in roughly four years, recalling the energy shock that followed Russian invasion of Ukraine.
Higher energy costs are raising concerns that inflation could accelerate again, placing pressure on consumers and businesses alike.
Stock markets in Asia reacted swiftly, with Nikkei 225 in Tokyo falling more than 5 per cent while South Korea’s KOSPI dropped six per cent, reflecting those economies’ reliance on Middle Eastern oil supplies.
Patrick De Haan, an analyst at GasBuddy widely followed for fuel price forecasts, said there was roughly an 80% per cent chance the US national average petrol price would reach USD 4 per gallon within the next month.
By early Monday morning in New York trading, Brent crude – the global benchmark – was still around USD 107 a barrel on futures markets. That was about 15 per cent higher than the previous Friday and roughly 47 per cent above levels seen 10 days earlier, before the strikes on Iran began. Prices had briefly approached USD 120 overnight before retreating amid reports of coordinated international action to release oil reserves.
Even before the latest jump in crude prices, the cost of petrol in the US had already risen by about 51 cents per gallon, and analysts expect the latest surge in oil to feed quickly into prices at the pump.
Financial markets are also showing signs of strain. Futures linked to the S&P 500 fell about 1.3 per cent overnight, pointing to a third consecutive day of losses on Wall Street.
One of the central concerns for markets is the possibility that Iran may attempt to block the Strait of Hormuz, the narrow waterway through which a large share of the world’s oil exports passes. Tehran has warned it could target ships attempting to pass through the strait.
Bob McNally, president of Rapidan Energy and a former advisor in the administration of George W. Bush, said the war had already produced what he described as the largest oil supply disruption in modern history.
As such, roughly 20 per cent of global supply has been affected, which is double the disruption seen during the Suez Crisis, previously considered the most severe supply shock.
Over the weekend, the conflict also spread to critical infrastructure in the Gulf, with reported Iranian strikes on desalination plants that provide drinking water across the region.
Meanwhile, Donald Trump has raised the possibility of deploying US’ ground forces in Iran, a move that would significantly escalate the conflict.
In a post on the social platform Truth Social, Trump argued that the rise in energy prices would be temporary.
“Short term oil prices, which will drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay for USA, and World, Safety and Peace,” he wrote, adding that “only fools would think differently”.
