The war in the Middle East is forcing global investors to contend with risks to energy supplies and the potential for higher inflation worldwide. Global stock markets have fallen and oil and gas prices spiked after US and Israeli strikes on Iran and Iran’s retaliatory attacks on regional oil and gas infrastructure.
Brent crude rose above $80 a barrel and continued climbing after the first trading days following the strikes. Gas prices in Asia and Europe also jumped. Much attention has focused on the Strait of Hormuz, a choke point that handles roughly 20% of global oil flows and large volumes of gas. Iran’s Revolutionary Guards said the waterway is closed and threatened to attack any ship attempting to transit, though Bloomberg reported China was urging Iran to keep the strait open. China depends on the strait for about half its oil imports.
US President Donald Trump announced plans to insure and escort tankers and other vessels through the strait, but the announcement lacked operational detail and did little to calm markets. Analysts noted naval escorts would help but would take time to organize and could be vulnerable to Iranian attacks, meaning the US might wait until Iran’s strike capabilities were diminished.
Insurance and shipping disruptions
Even though the Strait of Hormuz remains technically open, tanker traffic has effectively halted as shippers suspend voyages amid safety concerns and soaring insurance costs. Major marine insurers — including Gard, Skuld, NorthStandard, the London P&I Club and the American Club — said they would cancel war risk coverage for vessels in the Middle East Gulf effective March 5, forcing shipping firms to find scarcer, more expensive cover. More than 150 vessels, including oil and LNG tankers, have anchored in and around the strait, tightening global oil and gas supply.
Regional energy damage
Iranian strikes have hit key energy facilities. Saudi Aramco shut its largest domestic refinery after a drone attack; QatarEnergy halted LNG output at two main gas processing sites; and a drone attack on an industrial facility in the UAE’s Fujairah sparked a fire. The scale of supply losses depends on the extent of infrastructure damage and how long shipping routes remain disrupted.
Market reaction and forecasts
Despite the escalation, many investors appear to be pricing the disruption as temporary. Short-term energy contracts have spiked more than longer-dated ones, suggesting traders expect supply to normalize. Oxford Economics’ head of energy forecasting, Bridget Payne, said the market is relatively well supplied and that Iran is unlikely to sustain a severe, prolonged disruption, making a full-blown oil crisis unlikely. Payne forecasts Brent averaging about $79 per barrel in Q2 before easing as supply resumes. By contrast, some scenarios assume prices could reach $100 per barrel if the conflict were protracted.
Trade disruption, more than lost production, is the key risk: spare capacity in Saudi Arabia and the UAE can offset some lost Iranian output, but alternative routes can only re-route around a third of typical Strait of Hormuz flows.
Regional economic impacts
Asian economies are especially vulnerable because they receive a large share of oil and LNG transiting the strait. In 2024, about 84% of crude oil and condensate and 83% of LNG moving through the Strait of Hormuz went to Asian markets, with China, India, Japan and South Korea the main destinations. China buys nearly 90% of Iran’s sanctioned oil, but Iran supplies only about 11% of China’s imported crude, so a sustained shipping disruption would be more damaging to China than a loss of Iranian output. That gives China a strong interest in keeping energy flowing and may limit Beijing’s willingness to dramatically escalate support for Iran.
Europe’s exposure and inflation risk
Europe is also at risk, particularly through the gas channel. The euro weakened sharply against the dollar amid concerns that a prolonged disruption could spike eurozone inflation and derail a fragile recovery. Europe is a key market for Qatari LNG; if Qatari output remains halted, Asian buyers could compete for cargoes, pushing up prices and complicating Europe’s efforts to refill gas storage after a cold winter. European natural gas futures rose about 22% to €54.29 per megawatt-hour on Tuesday, adding to steep gains earlier in the week.
Analysts warn that global LNG supply will tighten if Qatari output is curtailed and if the Strait of Hormuz remains closed, but the overall impact will hinge on the duration of closures and the extent of damage to energy infrastructure.
Edited note: This article was updated to reflect US plans to insure and escort ships through the Strait of Hormuz and recent rises in oil and gas prices.
