Conflict in Iran: Impact if it continues
The Trigger: Why Iran Matters Economically
Iran's enormous oil reserves and its geostrategic position controlling the Strait of Hormuz, through which a significant portion of global trade passes, mean that this conflict has profound repercussions for the global economy.
Energy: The Most Immediate Transmission Channel
The most visible and immediate impact is already materializing in energy markets. The price of Brent crude rose almost 9% to $79 per barrel, while Dutch natural gas (the European benchmark) soared almost 48% after the halt in LNG production in Qatar.
On Tuesday, the benchmark US crude rose more than 6.7% to $76 per barrel, and Brent surpassed $83.
The most critical factor is the Strait of Hormuz. Between 14 and 15 million barrels of crude oil and a fifth of the world's liquefied natural gas shipments pass through the Gulf daily. As a result of the strait's closure, 150 cargo ships, including many oil tankers, are already stranded.
Short-term scenario vs. prolonged conflict
Economists warn that the broader economic impact will depend on the duration and intensity of the conflict. A brief upswing would leave only a limited and temporary mark, while a prolonged confrontation could be far more damaging.
In the short term, oil is the main transmission channel. If the Strait of Hormuz remains open, the impact will be manageable and financial rather than real. If there is a sustained disruption, the world would face a new supply shock with the risk of global stagflation.
Europe: The Most Vulnerable Flank
According to ECB Chief Economist Philip Lane, a prolonged conflict leading to a persistent drop in energy supply would produce a substantial increase in inflation in the eurozone, which would be especially negative for economic activity.
Europe is more exposed to energy crises and has low levels of gas storage. The cancellation of war insurance and stranded ships add a logistical risk that could prolong the crisis and generate significant inflation, according to analyses by Citi, Goldman Sachs, and JPMorgan Chase.
United States: More Resilient, But Not Immune
The US economy is less oil-intensive today than in previous decades, with services representing a larger share of output, which reduces its vulnerability. However, if the war with Iran drags on for months, it could depress business confidence, leading companies to invest and hire less.
The political risk is also real: a prolonged increase in gasoline prices would reinforce the feeling that everyday essentials are becoming increasingly difficult to afford.
Financial Markets and Global Confidence
The IMF has already pointed to disruptions in trade and economic activity, sudden increases in energy prices, and volatility in financial markets, acknowledging that "the situation remains highly unstable and adds to an already uncertain global economic environment." The Fund plans to publish a comprehensive assessment in April.
Wall Street is betting on a short conflict, but Trump's mixed signals are generating uncertainty. The dollar is recovering as a safe-haven asset, and the market is concentrating on the technology and defense sectors.
Conclusion: Three Possible Scenarios
Short Conflict (Weeks): Moderate energy impact, temporary inflation, markets recover quickly.
Conflict of Months: Possible regional stagflation, severe damage in Europe, setback in global growth, disruption of energy supply chains.
Multilateral Escalation: If a coalition of allied countries forms against Iran, the world would face a new supply shock comparable to or greater than the Russian invasion of Ukraine in 2022.
The key lies in whether the Strait of Hormuz remains operational and how long it takes for the internal Iranian political situation to stabilize after the removal of its leadership.
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