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The long shock: How the Iran war is remaking the global economy
The closure of the Strait of Hormuz marks a rupture in the post-1970s energy order, with consequences that may redefine how the global economy functions
29.04.2026
By Jonathan Fenton-Harvey*
Source:https://www.newarab.com/analysis/long-shock-how-iran-war-remaking-global-economy
The US and Israeli-led war on Iran has initiated a chain reaction that has culminated in the most significant oil supply disruption in modern history.
Iran’s retaliatory strikes against energy infrastructure in Saudi Arabia, Qatar, Iraq, Kuwait, and the UAE, and its effective closure of the Strait of Hormuz, sent immediate economic ripples across the globe.
Despite the fragile ceasefire talks held in Pakistan, which brought hopes that the blockade of Hormuz would ease, Iran is advancing a proposed law that would formally designate its armed forces as the primary authority over the waterway.
This shows Tehran's determination to assert greater long-term control, highlighting the future vulnerability of this critical chokepoint even after any eventual resolution of the current conflict.
A prolonged blockade of the Strait of Hormuz could not only dwarf the economic impact of Russia’s invasion of Ukraine but could exceed the combined effects of that war, the 1973 Arab OPEC oil embargo, and the shock of the 1979 Iranian revolution.
Indeed, the current crisis marks a major paradigm shift: both a physical blockade of a critical chokepoint and the destruction of the very production infrastructure that feeds it.
Although a quick resolution to the conflict and reopening of Hormuz would alleviate some strain on the world’s economy, even two months of blockade would likely cause lasting damage.
"I think the 'geopolitical premium' has shifted from a temporary shock to something more structural, particularly in energy, shipping, and insurance markets linked to vulnerable corridors,” Umud Shokri, Energy Strategist and Senior Visiting Fellow at George Mason University, told The New Arab.
This shift means that even during lulls in fighting, the global economy is operating under a new, more expensive reality where "the premium is less about spikes and more about a persistent floor under costs,” he added.
The artery that stopped
To grasp the magnitude of the "artery that stopped," it’s important to consider the pre-war throughput of 20 to 21 million barrels of oil and a fifth of global liquefied natural gas (LNG) that transited the Strait daily.
While bypass pipelines exist through Saudi Arabia and the UAE, they lack the capacity to compensate for a full Hormuz blockade.
By March, production losses across the Gulf reached between 6.7 and 10 million barrels per day. The International Energy Agency (IEA), rarely prone to hyperbole, termed this the greatest supply crisis in its history.
The IEA also warned that April losses would be deeper than March, as pre-crisis cargoes in transit dried up and almost no new loadings passed through the Strait.
Despite member countries releasing 400 million barrels from strategic reserves, flows remain at a trickle, down more than 90 percent from their peak, while overall Gulf production runs some 57 percent below pre-war levels, according to Goldman Sachs.
The price shock has been historic and sustained. Brent crude, which traded at $72 per barrel before the outbreak of hostilities, surged past $120 in March. Prices remain in a "crisis range" of $95 to $110.
Analysts at the IMF and OECD suggest that even a full cessation of hostilities will not bring a rapid return to $70 oil. The physical destruction of refineries, LNG plants, and desalination facilities suggests that repair timelines could span three to five years in a pessimistic scenario.
The gas crisis is equally severe. Qatar’s Ras Laffan complex, the world's largest LNG export facility, was hit directly, and its dependence on the Strait for export sent Asian spot LNG prices climbing by 140 percent.
This creates a profound strategic vulnerability for Europe. Having spent the years following the Ukraine war diversifying away from Russian gas towards GCC energy, the recent crisis has put their economies under further strain.
The primary threat is ‘stagflation,’ a paralysing combination of rising inflation and stagnating growth, with Germany and Italy at particular risk.
However, organisations such as Allianz Research and Oxford Economics have warned that a persisting Hormuz blockade could even push the Eurozone, and particularly energy-dependent economies, into outright recession.
And unlike the Ukraine war, where GCC economies benefited from higher oil prices, the damage to infrastructure means Gulf nations are now grappling with a humanitarian and economic emergency of their own.
From price shock to economic emergency
The Gulf's domestic finances tell an equally troubled story, with governments simultaneously managing massive infrastructure damage and defending currency stability.
Karen Young, Senior Research Scholar at the Columbia University Centre on Global Energy Policy, told The New Arab that "Goldman Sachs estimates that, for the GCC as a whole, net government borrowing requirement has doubled from around US$1.7bn per week, to US$3.5bn since March".
Beyond oil, there is significant pressure on the banking sector.
Dr Young highlights that "a swap line would act as a safety net to ensure UAE banks can get USD liquidity without draining national FX reserves if the Iran conflict worsens and there is a significant demand for USD by firms, residents and banks themselves".
Several GCC economies now face outright contraction in 2026. Oxford Economics forecasts GCC GDP to contract by 0.2% this year, pushing the region toward its worst economic crisis since the Covid-19 pandemic.
With the GCC importing 70 percent of its food, disrupted maritime routes have triggered a grocery supply emergency, with consumer food prices spiking by as much as 120 percent.
"For Kuwait, the timing is unfortunate, as they had just begun to open their hydrocarbon sector to foreign investors and operators, including a deal to allow investors in a pipeline network. Bidders are now walking away from that opportunity,” said Young.
The war has already had a knock-on impact on GCC unity, with the UAE announcing its withdrawal from OPEC+ on 28 April, effective from 1 May.
While Abu Dhabi is pursuing its own national interests to eventually expand its own production to five million barrels per day, the move has been described as a “serious blow” to OPEC stability, in that it further fragments Gulf producer coordination and may weaken future collective discipline to stabilise markets.
Some Gulf states are already looking beyond the immediate crisis.
As Dr Young notes, while certain states like Kuwait and Qatar have financial buffers, "in their longer-term view of energy security, and economic security, there will be a need to consider redundancies, more defence spending and protection of critical infrastructure, and likely investment across wider geographies".
A systemic global shock
While there is substantial focus on the oil and gas sector, the consequences are wide-ranging in other sectors, with stark implications for the world’s most vulnerable.
The geopolitical fallout is deeply uneven, with the Asia-Pacific region bearing the heaviest burden. China, India, Japan, and South Korea previously absorbed 75 percent of Gulf exports, and the resulting GDP hits, estimated between 0.3 and 0.8 percentage points, represent hundreds of billions in lost output.
Adam Posen, President of the Peterson Institute for International Economics (PIIE), told The New Arab that he identifies a "triple whammy" currently hitting low-and middle-income economies (LMIEs).
He noted that these consist of “higher food and energy prices; capital flows to the dollar for temporary safe haven pushing down local currencies, making such imports more expensive; the need to tighten monetary policy locally as G7 central banks shift away from easing bias”.
Posen added that while he does not think that there is a permanent shift to restrictive global monetary policy, he believes there is a lasting shift to higher long-term interest rates for US and other G7 government bonds, which puts pressure on LMIE currencies and credit conditions.
The industrial fallout is becoming self-reinforcing. Shipping and logistics have been upended by surging war-risk insurance premiums, forcing vessels to reroute around the Cape of Good Hope, which adds two weeks to transit and massive fuel costs. This has led to port congestion and supply shortages for manufacturers.
Industries ranging from aviation to petrochemicals are facing production slowdowns or outright halts due to soaring input costs.
In agriculture, the shortage of urea, a fertiliser produced from natural gas, threatens global crop yields for the coming seasons, creating the risk that the ‘bill’ for this war could be paid at dinner tables for years to come.
"If the blockage of fertiliser movement continues for another couple of months, coming harvest yields will be markedly reduced, with devastating effects on the world's most vulnerable,” Maurice Obstfeld, Emeritus Professor at the University of California, Berkeley, and former Chief Economist at the International Monetary Fund (IMF), told The New Arab.
“An entire cohort of children in poorer countries will see their development set back."
According to the World Food Program (WFP), ongoing disruptions from the conflict may force another 45 million people into severe hunger by mid-2026, potentially raising the global number to a record high of about 363 million.
"With great powers sadly in the lead, we are seeing the weaponisation of economic policy across a range of tools and a range of geopolitical objectives,” added Obstfeld.
Ultimately, the Strait of Hormuz remains the pivotal variable for the global macroeconomic outlook.
The IMF has already revised its 2026 global growth forecast down to 3.1 percent, but a prolonged closure could very well trigger a full global recession. Central banks find themselves in an extremely challenging predicament, unable to cut rates to support growth without fuelling energy-driven inflation.
"What used to be treated as exceptional is now treated as recurring, and that alone embeds a structural layer of cost into global trade and energy systems," Dr Shokri said.
The destruction of physical infrastructure and the realignment of global trade routes mean the economic consequences of these past two months may be felt well into the 2030s.
*Jonathan Fenton-Harvey is a journalist and researcher who focuses on conflict, geopolitics, and humanitarian issues in the Middle East and North Africa
Follow him on Twitter: @jfentonharvey
Edited by Charlie Hoyle
The closure of the Strait of Hormuz marks a rupture in the post-
29.04.2026
By Jonathan Fenton-
The US and Israeli-
Iran’s retaliatory strikes against energy infrastructure in Saudi Arabia, Qatar, Iraq, Kuwait, and the UAE, and its effective closure of the Strait of Hormuz, sent immediate economic ripples across the globe.
Despite the fragile ceasefire talks held in Pakistan, which brought hopes that the blockade of Hormuz would ease, Iran is advancing a proposed law that would formally designate its armed forces as the primary authority over the waterway.
This shows Tehran's determination to assert greater long-
A prolonged blockade of the Strait of Hormuz could not only dwarf the economic impact of Russia’s invasion of Ukraine but could exceed the combined effects of that war, the 1973 Arab OPEC oil embargo, and the shock of the 1979 Iranian revolution.
Indeed, the current crisis marks a major paradigm shift: both a physical blockade of a critical chokepoint and the destruction of the very production infrastructure that feeds it.
Although a quick resolution to the conflict and reopening of Hormuz would alleviate some strain on the world’s economy, even two months of blockade would likely cause lasting damage.
"I think the 'geopolitical premium' has shifted from a temporary shock to something more structural, particularly in energy, shipping, and insurance markets linked to vulnerable corridors,” Umud Shokri, Energy Strategist and Senior Visiting Fellow at George Mason University, told The New Arab.
This shift means that even during lulls in fighting, the global economy is operating under a new, more expensive reality where "the premium is less about spikes and more about a persistent floor under costs,” he added.
The artery that stopped
To grasp the magnitude of the "artery that stopped," it’s important to consider the pre-
While bypass pipelines exist through Saudi Arabia and the UAE, they lack the capacity to compensate for a full Hormuz blockade.
By March, production losses across the Gulf reached between 6.7 and 10 million barrels per day. The International Energy Agency (IEA), rarely prone to hyperbole, termed this the greatest supply crisis in its history.
The IEA also warned that April losses would be deeper than March, as pre-
Despite member countries releasing 400 million barrels from strategic reserves, flows remain at a trickle, down more than 90 percent from their peak, while overall Gulf production runs some 57 percent below pre-
The price shock has been historic and sustained. Brent crude, which traded at $72 per barrel before the outbreak of hostilities, surged past $120 in March. Prices remain in a "crisis range" of $95 to $110.
Analysts at the IMF and OECD suggest that even a full cessation of hostilities will not bring a rapid return to $70 oil. The physical destruction of refineries, LNG plants, and desalination facilities suggests that repair timelines could span three to five years in a pessimistic scenario.
The gas crisis is equally severe. Qatar’s Ras Laffan complex, the world's largest LNG export facility, was hit directly, and its dependence on the Strait for export sent Asian spot LNG prices climbing by 140 percent.
This creates a profound strategic vulnerability for Europe. Having spent the years following the Ukraine war diversifying away from Russian gas towards GCC energy, the recent crisis has put their economies under further strain.
The primary threat is ‘stagflation,’ a paralysing combination of rising inflation and stagnating growth, with Germany and Italy at particular risk.
However, organisations such as Allianz Research and Oxford Economics have warned that a persisting Hormuz blockade could even push the Eurozone, and particularly energy-
And unlike the Ukraine war, where GCC economies benefited from higher oil prices, the damage to infrastructure means Gulf nations are now grappling with a humanitarian and economic emergency of their own.
From price shock to economic emergency
The Gulf's domestic finances tell an equally troubled story, with governments simultaneously managing massive infrastructure damage and defending currency stability.
Karen Young, Senior Research Scholar at the Columbia University Centre on Global Energy Policy, told The New Arab that "Goldman Sachs estimates that, for the GCC as a whole, net government borrowing requirement has doubled from around US$1.7bn per week, to US$3.5bn since March".
Beyond oil, there is significant pressure on the banking sector.
Dr Young highlights that "a swap line would act as a safety net to ensure UAE banks can get USD liquidity without draining national FX reserves if the Iran conflict worsens and there is a significant demand for USD by firms, residents and banks themselves".
Several GCC economies now face outright contraction in 2026. Oxford Economics forecasts GCC GDP to contract by 0.2% this year, pushing the region toward its worst economic crisis since the Covid-
With the GCC importing 70 percent of its food, disrupted maritime routes have triggered a grocery supply emergency, with consumer food prices spiking by as much as 120 percent.
"For Kuwait, the timing is unfortunate, as they had just begun to open their hydrocarbon sector to foreign investors and operators, including a deal to allow investors in a pipeline network. Bidders are now walking away from that opportunity,” said Young.
The war has already had a knock-
While Abu Dhabi is pursuing its own national interests to eventually expand its own production to five million barrels per day, the move has been described as a “serious blow” to OPEC stability, in that it further fragments Gulf producer coordination and may weaken future collective discipline to stabilise markets.
Some Gulf states are already looking beyond the immediate crisis.
As Dr Young notes, while certain states like Kuwait and Qatar have financial buffers, "in their longer-
A systemic global shock
While there is substantial focus on the oil and gas sector, the consequences are wide-
The geopolitical fallout is deeply uneven, with the Asia-
Adam Posen, President of the Peterson Institute for International Economics (PIIE), told The New Arab that he identifies a "triple whammy" currently hitting low-
He noted that these consist of “higher food and energy prices; capital flows to the dollar for temporary safe haven pushing down local currencies, making such imports more expensive; the need to tighten monetary policy locally as G7 central banks shift away from easing bias”.
Posen added that while he does not think that there is a permanent shift to restrictive global monetary policy, he believes there is a lasting shift to higher long-
The industrial fallout is becoming self-
Industries ranging from aviation to petrochemicals are facing production slowdowns or outright halts due to soaring input costs.
In agriculture, the shortage of urea, a fertiliser produced from natural gas, threatens global crop yields for the coming seasons, creating the risk that the ‘bill’ for this war could be paid at dinner tables for years to come.
"If the blockage of fertiliser movement continues for another couple of months, coming harvest yields will be markedly reduced, with devastating effects on the world's most vulnerable,” Maurice Obstfeld, Emeritus Professor at the University of California, Berkeley, and former Chief Economist at the International Monetary Fund (IMF), told The New Arab.
“An entire cohort of children in poorer countries will see their development set back."
According to the World Food Program (WFP), ongoing disruptions from the conflict may force another 45 million people into severe hunger by mid-
"With great powers sadly in the lead, we are seeing the weaponisation of economic policy across a range of tools and a range of geopolitical objectives,” added Obstfeld.
Ultimately, the Strait of Hormuz remains the pivotal variable for the global macroeconomic outlook.
The IMF has already revised its 2026 global growth forecast down to 3.1 percent, but a prolonged closure could very well trigger a full global recession. Central banks find themselves in an extremely challenging predicament, unable to cut rates to support growth without fuelling energy-
"What used to be treated as exceptional is now treated as recurring, and that alone embeds a structural layer of cost into global trade and energy systems," Dr Shokri said.
The destruction of physical infrastructure and the realignment of global trade routes mean the economic consequences of these past two months may be felt well into the 2030s.
*Jonathan Fenton-
Edited by Charlie Hoyle