The head of the International Energy Agency (IEA) has warned that the oil and gas crisis triggered by the blockade of the Strait of Hormuz is more severe than the combined shocks of 1973, 1979 and the 2022 Ukraine conflict. Speaking as Donald Trump's deadline for Iran to reopen the waterway approached, Fatih Birol told Le Figaro that developing nations are most at risk, but European countries, Japan and Australia will also feel the impact through higher prices and inflation.
Oil prices fluctuated around $110 a barrel on Tuesday, rising after Trump warned that 'a whole civilization will die tonight' unless Iran made a deal, before easing. Investors are increasingly anxious as the US-Iran conflict escalates, with reports of US strikes on Kharg Island, a key Iranian oil export terminal. Daniela Hathorn of Capital.com described the situation as a 'near-term binary outcome' between escalation or de-escalation, keeping markets volatile.
European markets fell on Tuesday, with the FTSE 100 closing 0.84% down. The IMF's Kristalina Georgieva said the war is likely to lead to higher inflation and slower global growth, reversing earlier expectations of an upgrade. In the UK, the RAC reported significant fuel price rises over Easter, with petrol up 2.6p to 157.02p per litre and diesel up 4.2p to 189.42p.
The conflict is also pushing the British economy towards stagflation, according to a survey of purchasing managers. Service sector growth was the weakest in 11 months in March, due to falling business and consumer spending. Thomas Pugh of RSM UK warned that even if the conflict ends soon, the UK faces another bout of stagflation, with a recession likely if it drags on.
