How would a war between Iran and Israel affect global trade?
Tensions are rising, and the world is anxiously watching the escalating conflict between Iran and Israel.
Beyond the direct human toll, a major concern is its potential impact on global trade, especially after the recent US attack on Iranian nuclear facilities. Here are some key factors:
Strait of Hormuz: A Critical Chokepoint
The Strait of Hormuz is a narrow waterway between Oman and Iran that connects the Persian Gulf, the Gulf of Oman, and the Arabian Sea. Its strategic importance is unquestionable, as it is a key route for oil trade, with one-fifth of the world’s oil consumption passing through it every day.
According to the U.S. Energy Information Administration (EIA), the strait will account for more than a quarter of global maritime oil trade by 2024. In addition, the strait is a hub for liquefied natural gas (LNG) shipping, with nearly a fifth of global LNG trade, especially from Qatar, passing through the strait. Given the limited alternatives to extracting oil from the strait, any disruption would have severe consequences.
Iran has the ability to sabotage the strait, and closing it would severely affect countries such as China, India, Japan and South Korea that rely heavily on the strait for oil and gas imports. Even a partial or temporary closure could cause oil prices to soar. Goldman Sachs noted that in a worst-case scenario, oil prices could exceed $100 a barrel if the strait is closed.
Impact on oil prices
As tensions escalate, oil prices have risen sharply, breaking through $78 a barrel for the first time since January.
In an industry report, JPMorgan Chase noted that oil prices rose 3.6% on concerns about escalating tensions in the Middle East, breaking through $78 a barrel for the first time since January. If geopolitical tensions escalate, analysts expect oil prices to reach $120 a barrel. In addition, potential regime change in Iran, OPEC’s third-largest oil producer, could have a greater impact on global oil prices than the Libyan revolution in 2011.
Aviation Disruptions
The conflict has led to severe disruptions to air travel, with many airlines suspending or canceling flights to Middle Eastern destinations due to airspace closures and security concerns.
According to Al Jazeera, Emirates has suspended flights to Iraq, Jordan, Lebanon, and Iran until June 30. Etihad Airways has canceled its flights to and from Abu Dhabi and Tel Aviv until June 30. In addition, Qatar Airways has also temporarily canceled flights to Iran, Iraq, and Syria. Countries such as Iraq and Jordan have also closed their airspace, further complicating air travel in the region.
Impact on India
As a major oil importer, India faces a huge risk from a possible disruption to the Strait of Hormuz. A large portion of India’s crude oil imports need to pass through this route, and any closure could have a negative impact on the country’s energy security.
Indian Oil Minister Hardeep Singh Puri assured citizens of a stable energy supply, noting that the diversification of oil import routes has increased significantly in recent years.
Rising transportation costs and insurance premiums could push up inflation, further complicating the economic outlook. In addition, trade with Iran, Israel and other West Asian countries may also be affected by the escalation of tensions.
Wider economic consequences
Higher oil prices and supply chain disruptions could lead to a sharp rise in global inflation. Blockades, ship attacks, and high insurance costs could lead to severe product shortages and could cause many manufacturing industries to shut down.
Heightened uncertainty could prompt businesses and consumers to act more cautiously and postpone investment and spending decisions.
International trade expert Dr. Fawaz Alami noted that continued geopolitical instability could lead to a slowdown in global trade growth of more than 7% between 2025 and 2026.
The conflict between Iran and Israel poses a major threat to global trade. The potential closure of the Strait of Hormuz, combined with rising oil prices, could lead to a sudden increase in global trade volumes.
