The US-Israeli conflict on Iran can have a profound influence on the worldwide power markets. It has already despatched the worth of the benchmark Brent crude oil hovering to almost $120 per barrel, near its highest level of $147 recorded in July 2008.
In 2022, after Russia’s invasion of Ukraine, Brent crude additionally spiked, reaching $139 per barrel in March, earlier than stabilising at roughly pre-war charges the next 12 months. The value of pure fuel additionally registered a peak in 2022, and so it has this month, because of the assaults on Iran and the closure of the Strait of Hormuz.
Some could level to the power shock of the Russia-Ukraine conflict and argue that the Iran conflict will observe the identical sample: a short lived shock and eventual market normalisation. However that’s unlikely to be the case. Sure, oil and fuel costs will ultimately stabilise, however that might come at a a lot larger financial price for the area and the world.
A chokepoint and no options
The 2022 power shock was primarily pushed by the sanctions and worth caps that European international locations and the US imposed on Russia. This pushed massive volumes of oil into different commerce routes and minimize off many of the Russian pipeline fuel provide to Europe. This resulted within the rerouting of oil and fuel flows and the coordinated launch of oil reserves to mitigate worth spikes.
The conflict and the sanctions, nevertheless, didn’t change Russia’s place within the world market: it remained one of many largest oil and fuel producers. It continued to promote its hydrocarbons internationally, together with to European international locations, albeit via intermediaries.
Against this, the 2026 US–Iran conflict has resulted in a bodily chokepoint, taking offline a part of the availability of oil and fuel because of the closure of the Strait of Hormuz. Tanker visitors disruptions have compelled Gulf producers to curtail output as they’ve run out of storage capability.
As well as, Iranian strikes on fuel and oil infrastructure have resulted in some injury and the shutdown of many services as a precaution. These infrastructure assaults have amplified uncertainty, growing threat premiums, and eradicating some manufacturing capability from the market.
The Worldwide Vitality Company (IEA) assesses that the present episode is the biggest provide disruption within the historical past of the worldwide oil market, with flows via Hormuz collapsing from 20 million barrels per day to a trickle and Gulf manufacturing cuts of at the least 10 million barrels per day.
In 2022, the discharge of 180 million barrels of oil helped handle the power worth shock because it considerably alleviated fears of shortages. Nonetheless, this month’s resolution by the IEA to launch 400 million barrels of oil is unlikely to have the identical impact as a result of it isn’t addressing the basis downside: the bodily outage.
Moreover, the effectiveness of the reserve launch is constrained by logistics. Strategic petroleum reserves are predominantly positioned within the US, Europe, Japan, and South Korea, the place they’re saved in inland services. Shifting this oil to the areas most affected by shortages, particularly Asian import markets and, to a lesser extent, Europe, requires time, delivery capability, and safe maritime routes. Within the present context, with the constrained tanker availability, merely releasing oil from storage doesn’t assure its well timed supply to finish customers.
Rerouting may also not assist. Different pipeline routes that bypass the Strait of Hormuz in Saudi Arabia and Iraq present solely 3.5–5.5 million barrels per day of spare capability.
The pure fuel market faces an analogous disaster. On a yearly foundation, 112 billion cubic metres (bcm) of liquefied pure fuel (LNG) or 20 p.c of world LNG commerce, usually passes via the Strait of Hormuz. This has now been minimize off.
The options are restricted. There’s the Dolphin pipeline, which runs from Qatar via the United Arab Emirates and to Oman and transports 20-22 bcm a 12 months. The pipeline itself doesn’t have a lot additional capability to tackle extra fuel, and Oman’s LNG terminals, the place fuel is liquified, additionally can not accommodate an elevated movement.
The worldwide LNG market is even tighter than oil, and there’s no spare production capacity to satisfy global demand. Most present services are already operating at excessive utilisation charges, and short-term provide flexibility is proscribed. The growth of LNG manufacturing would take time and can’t compensate for the quick shortages.
What awaits us in the long term?
In 2022, the Russia–Ukraine conflict demonstrated that the worldwide power system had the capability to soak up worth shocks via rerouting, substitution, and coverage intervention. In 2026, the US-Israeli conflict on Iran uncovered a elementary vulnerability: the bodily focus of hydrocarbon flows in vital chokepoints, which can’t be compensated for when a closure happens.
Not like sanctions-driven disruptions, a sustained blocking of the Strait of Hormuz obstructs not solely commerce routes, however the very potential of producers to export, pushing markets past adjustment mechanisms into compelled demand destruction and structural reconfiguration.
In different phrases, the longer the conflict continues and the longer the free transit via the strait stays disrupted, the longer the costs of oil and fuel will stay excessive. Instruments utilized in 2022 – similar to diversification and rerouting – won’t work to calm the markets.
Persistent excessive costs will pressure shoppers and industries to curb their consumption. Vitality-intensive industries similar to petrochemicals, fertilisers, aluminium, metal, and cement are prone to face probably the most quick stress, as uncooked supplies and gas prices rise sharply.
The transportation sector may also be affected, although with completely different dynamics. Increased oil costs translate into elevated gas prices for aviation, delivery, and highway transport, in addition to elevating freight charges and ticket costs.
Whereas demand in these sectors is comparatively inelastic within the quick time period, sustained excessive costs will ultimately cut back mobility, shift consumption patterns, and speed up effectivity measures. On the family stage, larger power prices will cut back disposable revenue, resulting in oblique consumption contraction throughout the broader financial system.
For the Gulf Cooperation Council (GCC) states, this won’t be merely a market shock however an existential problem to their function as dependable suppliers, as export disruptions, infrastructure vulnerability, and rising safety prices undermine each volumes and credibility.
For the remainder of the world, this is able to imply slower financial development. The one technique to keep away from grave financial penalties is to finish the conflict as quickly as doable.
The views expressed on this article are the writer’s personal and don’t essentially replicate Al Jazeera’s editorial stance.
