The US and Israeli military campaign against Iran has created a major shock in global energy markets. According to the International Energy Agency, this could become the most significant disruption the energy sector has ever faced. As a result, the risk of a global economic slowdown is rising.

At the center of this issue is oil.

Prices have already increased sharply, and there are warnings that they could remain above US$100 per barrel for some time. In a worst-case scenario, prices could rise much higher. Iran has also signaled that it may take actions to push oil prices even further up if the conflict continues.

Oil price increases have a direct impact on the global economy. When energy becomes more expensive:

  • Businesses face higher costs
  • Consumers spend more on fuel and transport
  • Inflation rises
  • Economic growth slows

History shows this pattern clearly.

In 2007–2008, oil prices surged and helped trigger inflation just before the global financial crisis. Similar trends appeared in 2010–2011 and again in 2021–2022, when rising energy prices pushed inflation higher around the world.

Since the start of the conflict, oil prices have risen by about 60%. This has raised concerns about stagflation a situation where inflation rises while economic growth slows.

A key risk is disruption in the Strait of Hormuz, one of the world’s most important oil supply routes. Any prolonged blockage could significantly reduce global supply and push prices even higher.

There are also growing concerns about damage to energy infrastructure in the region. If major facilities are affected, it could take years to restore full production.

The outcome depends on how long the conflict lasts and how severe it becomes.

  • If oil prices rise to around US$140 per barrel and stay there, parts of the global economy could fall into recession.
  • If prices remain closer to US$100, growth may slow, but a deep recession might be avoided.

Even recent efforts to stabilize markets such as releasing emergency oil reserves, have not stopped prices from rising. This shows how serious the supply concerns are.

Central banks are already reacting.

The US Federal Reserve, European Central Bank, and Bank of England have paused plans to cut interest rates. Instead, they are focusing on controlling inflation, which may remain high due to rising energy costs.

Investors are also adjusting their expectations. Many now believe interest rates could stay higher for longer than previously thought.

This situation is not just a short-term shock. It highlights deeper risks in the global economy.

Business leaders should focus on:

  • Managing exposure to energy price volatility
  • Strengthening supply chain resilience
  • Planning for continued inflation and higher borrowing costs

The conflict involving Iran has quickly reshaped the global economic outlook. What seemed stable just weeks ago is now uncertain.

For executives, the key challenge is clear: make decisions in an environment where geopolitics, energy, and economics are tightly linked and changing fast.

Source: BT