Three weeks after the US and Israel launched airstrikes against Iran, the prospect of a prolonged war is causing mounting economic problems worldwide. Oil prices have surged above $100 a barrel, European gas prices have doubled, and consumers are bracing for a sharp rise in living costs. Central banks, including the US Federal Reserve, the Bank of England, and the European Central Bank, have warned that the conflict could have a material impact on inflation and dent global growth.
European heavy industry is particularly affected, still recovering from the 2022 energy price shock following Russia's invasion of Ukraine. Huntsman has warned that its Teesside plant in north-east England is at risk, while Germany's BASF, the world's largest chemicals firm, is raising prices. The cost of fertiliser, a byproduct of petroleum, is rising sharply, hurting farmers and laying the groundwork for higher food prices.
Iran has threatened to push oil to $200 a barrel by targeting shipping through the Strait of Hormuz and refineries across the Middle East. Iranian missiles recently hit Qatar's Ras Laffan liquefied natural gas facility, leading analysts to warn of a potential 'doomsday' scenario for energy markets. Meanwhile, President Trump's mixed messages—declaring the war 'won' while also suggesting it could end 'soon' or go 'further'—have added uncertainty for global markets.
Businesses and investors are struggling to respond. Barclays compared the president's comments to a 19th-century 'fog of war', fuelling violent market swings. Forecasters say a prolonged conflict could resemble past economic crises, such as the recessions of 1973, 1979, and 1990, which were triggered by Middle East conflicts. The clearest parallel is with the 1980s 'tanker war', when the US sent naval convoys to protect shipping in the Strait of Hormuz during the Iran-Iraq war.
