WASHINGTON (AP) — The U.S. and Israeli attack on Iran has soared prices, darkened the global economic outlook and spooked global stock markets, forcing developing countries to ration fuel and subsidize energy costs to protect the poorest.
in progress Strikes and counterattacks against refineries in the Persian Gulfpipelines, gas fields and tanker terminals, threaten to prolong the global economic pain for months or even years.
Christopher Knittel, an energy economist at the Massachusetts Institute of Technology, said: “A week ago, certainly two weeks ago, I would have said: If the war had stopped that day, the long-term effects would be pretty small. But what we’re seeing is that infrastructure is actually being destroyed. So the effects of this war are going to be long-lasting.”
Iran attacked Qatar’s Ras Laffan natural gas terminal, which produces 20% of the world’s liquefied natural gas. The March 18 strike wiped out 17% of Qatar’s LNG export capacity, and state-run Qatar Energy said it could take up to five years to repair.
The war brought about an oil crisis. On February 28, Iran effectively closed off the Strait of Hormuz, an Iranian transit point, in response to attacks by the United States and Israel. 1/5 of the world’s oilBy intimidating tankers attempting to pass.
Gulf oil exporters such as Kuwait and Iraq have cut production because without access to the strait they have nowhere to move their oil. The loss of 20 million barrels of oil per day resulted in what the International Energy Agency called “the largest supply disruption in the history of the global oil market.”
Brent crude oil prices rose 3.4% on Friday to settle at $105.32 per barrel. This was up from about $70 just before the war began. Benchmark U.S. crude oil rose 5.5% to settle at $99.64 per barrel.
“Historically, oil price shocks like this have caused global recessions,” Knittel said.
The war also erased memories of the bad economy caused by the oil shocks of the 1970s. stagflation.
“This raises the risk of higher inflation and lower growth,” said Carmen Reinhart, former World Bank chief economist and Harvard Kennedy School professor.
Gita Gopinath, former chief economist at the International Monetary Fund, recently wrote that global economic growth, which was predicted before the war to be 3.3% this year, would be 0.3 to 0.4 percentage points lower if oil prices averaged $85 a barrel in 2026.
Fertilizer shortages and price hikes hit farmers
The Persian Gulf accounts for the majority of exports. Two important fertilizersone-third of urea and one-fourth of ammonia. Producers in the region benefit from the low cost and easy availability of natural gas, the main raw material for nitrogen fertilizers.
Up to 40% of global exports of nitrogen fertilizers pass through the Strait of Hormuz.
Currently, the price of urea has increased by 50% since the war and the price of ammonia has increased by 20% because the passage is blocked. Kelly Hsu, macro commodity strategist at Alps, said Brazil, a big agricultural producer, is particularly vulnerable because it gets 85% of its fertilizer from imports. Egypt is a large fertilizer producing country, but natural gas is needed to make the raw material, but production will stall if it is not available in sufficient quantity.
Ultimately, rising fertilizer prices could make food more expensive and resources scarce as farmers skimp on food and produce lower yields. Tight food supplies will hit families in poor countries hardest.
Also in war, disrupted the world’s helium supplya byproduct of natural gas and an important input in chip manufacturing, rocketry, and medical imaging. Qatar produces helium at its Los Laffan facility and supplies one-third of the world’s helium.
Gas rationing and air conditioning restrictions
International Energy Agency chief: “If we continue in this direction, no country will be immune from this crisis.” Fatih Birol said on March 23:.
“Poor countries will be hit the hardest and face the greatest energy shortages because they will be outbid in competing for the remaining oil and gas,” said Lutz Kilian, director of the Dallas Fed’s Center on Energy and Economics.
Asia is particularly at risk:More than 80% of the oil and LNG that passes through the Strait of Hormuz heads to the Strait of Hormuz.
Government offices in the Philippines are currently open only four days a week, and bureaucrats must limit air-conditioning use to below 24°C (75°F). In Thailand, civil servants are ordered to use the stairs instead of the elevator.
India is the world’s second-largest importer of liquefied petroleum gas, which is used for cooking. India’s government prioritizes limited supply to households over businesses, absorbing most of the price increases to keep costs down for poorer households.
However, the LPG shortage has forced some restaurants to shorten business hours, temporarily close, or stop serving energy-intensive dishes such as curry and fried snacks.
South Korea, which relies on energy imports, has restricted the use of cars by civil servants and reinstated fuel price caps lowered in the 1990s.
Crisis hits fragile US economy
The United States, the world’s largest economy, is somewhat isolated.
Since the United States is an oil exporter, energy companies stand to benefit from higher prices. Additionally, LNG prices in the United States are lower than in other countries because export liquefaction facilities are already operating at 100% capacity. The U.S. can’t export more LNG than it already has, so the gas stays at home, where domestic supplies are plentiful and prices are stable.
Still, rising gas prices are weighing on American consumers already frustrated by the high cost of living. According to AAA, the average price of a gallon of gasoline has increased by: $2.98 per month to nearly $4 per gallon before.
“Nothing weighs more heavily on the collective psychology of consumers than having to pay more,” Mark Zandi, chief economist at Moody’s Analytics, and colleagues wrote in a commentary.
The U.S. economy is already showing signs of weakness, growing at an annual rate of just 0.7% from October to December, slowing from 4.4% growth from July to September. Employers unexpectedly cut 92,000 jobs The number of jobs increased in February, but in 2025 the increase will be limited to 9,700 people per month, marking the largest decline in employment since 2002 outside of a recession.
Gregory Daco, chief economist at EY Parthenon, has raised the probability of the U.S. going into recession over the next year to 40%. The risk during “normal” times is only 15%.
recovery takes time
The global economy has proven resilient in the face of repeated shocks, including the pandemic, Russia’s invasion of Ukraine, a resurgence in inflation, and the high interest rates needed to control it.
Therefore, there was an optimistic view that the damage caused by the Iran war could be reduced. But those hopes are fading as threats to the Gulf’s energy infrastructure continue.
“Some of the damage caused to Qatar’s LNG facilities is likely to take years to repair,” said Kilian of the Dallas Fed, noting that refineries in countries such as Kuwait and tankers in the Gulf need needed repairs, as well as resupply and stockpiling of marine fuels. “The process of recovery will be slow under the best of circumstances.”
“There are no economic benefits to a conflict with Iran,” Zandi et al. write. “The question now is how long the hostilities will last and how much economic damage they will cause.”
