The ongoing oil and gas crisis resulting from the blockade of the Strait of Hormuz is deemed “more severe than the crises of 1973, 1979, and 2022 combined,” according to Fatih Birol, the Executive Director of the International Energy Agency (IEA).
In an interview with Le Figaro, Birol expressed that the ramifications of the current conflict in the Middle East on the oil market surpass the cumulative impacts of the energy shocks experienced in the 1970s and the consequences of Russia’s invasion of Ukraine. He emphasized that developing nations are particularly vulnerable, facing the dual challenges of rising oil and gas prices alongside escalating food costs and inflation. Additionally, countries such as those in Europe, Japan, and Australia are also expected to feel the repercussions.
On Tuesday, oil prices fluctuated around the $110 per barrel mark, with a temporary spike following President Donald Trump’s alarming statement that “a whole civilization will die tonight” if Iran does not reach an agreement. Prices later settled just below this threshold.
Investor sentiment is increasingly fraught as Trump intensifies his rhetoric towards Iran, insisting on the reopening of the Strait of Hormuz as a precondition for any peace agreement. On his Truth Social platform, Trump reiterated his dire warning, and there were reports of U.S. military actions targeting sites on Kharg Island, a crucial Iranian oil export hub.
Daniela Hathorn, a senior market analyst at Capital.com, noted the markets are tense as the U.S.-Iran conflict escalates, describing the situation as a high-stakes binary scenario: either direct military actions against Iranian infrastructure or a last-minute easing of tensions that could result in a swift recovery of risk assets. The lack of a definitive resolution is contributing to the current volatility in the markets.
On Monday, Trump imposed a deadline of 8 PM Eastern Time the following day for Iran to negotiate with Washington, warning of potential strikes on civilian infrastructure should an agreement not be reached.
As a result of Trump’s latest threats, European markets experienced declines on Tuesday. The FTSE 100 index in London fell by 0.84%, Germany’s DAX dropped by 1.1%, and France’s CAC 40 decreased by 0.7%. Wall Street also opened lower, with the Dow Jones industrial average down 296 points, or 0.64%, to 46,373.
Asian markets showed mixed results, with Japan’s Nikkei remaining unchanged, while South Korea’s Kospi rose by 1.1%, and Hong Kong’s Hang Seng index fell by 0.7%. Market fluctuations have been prevalent since the U.S.-Israel attack on Iran in February, raising concerns regarding inflation and undermining investor confidence due to the effective closure of the Strait of Hormuz.
Kristalina Georgieva, the head of the International Monetary Fund (IMF), stated on Monday that the conflict is likely to result in higher inflation and slower global economic growth. She indicated that prior to the onset of hostilities, the IMF had anticipated a slight increase in global growth projections, but now forecasts indicate “all roads lead to higher prices and slower growth.” The IMF is set to release its global economic outlook report next week.
The UK has not been spared from these economic shocks, as the RAC reported notable fuel price increases over the Easter holiday, with petrol prices rising by 2.6 pence per liter to 157.02 pence, and diesel increasing by 4.2 pence to 189.42 pence.
Furthermore, the conflict in Iran is pushing the British economy toward stagflation, as indicated by a recent survey of purchasing managers at UK companies. The service sector’s growth was reported to be the slowest in 11 months in March, driven by declines in both business and consumer spending, according to S&P Global.
Thomas Pugh, Chief Economist at RSM UK, remarked that the data from the final PMI figures for March suggests that the UK could face another period of stagflation, even if the conflict comes to a swift conclusion. He added that prolonged tensions could potentially lead to a recession.
