The ongoing US-Israeli war on Iran, initiated on February 28, 2026, has plunged the global economy into significant turmoil, primarily driven by Iran's effective closure of the strategically vital Strait of Hormuz. This critical waterway, through which 20% of the world's oil and gas passes, has seen maritime traffic come to a near standstill, leading to a dramatic surge in global energy prices and widespread supply chain disruptions. The conflict, now approaching its one-month mark, has triggered acute shortages, inflation, and heightened risks of stagflation and recession across continents, impacting the daily lives of millions.
Following the initial US-Israeli strikes on Iran, which included the killing of Supreme Leader Ali Khamenei, Iran retaliated by targeting US military bases, Israeli territory, and energy infrastructure, alongside issuing warnings that effectively halted vessel passage through the Strait of Hormuz. This disruption has been described by the International Energy Agency (IEA) as the "greatest global energy and food security challenge in history" and the largest supply disruption in the global oil market since at least the 1970s. Tanker traffic through the strait plummeted by over 90% since March 2, 2026, with major shipping firms suspending operations.
Oil prices have reacted sharply to the crisis. Brent crude, the international benchmark, surged past $100 per barrel on March 8, 2026, and was trading near $104-$108 per barrel on Thursday, March 27, marking an increase of over 40% since the war began. Earlier in the month, it touched a crisis-high of $119.50. Analysts at Macquarie Group warn that oil prices could reach a staggering $200 per barrel if the conflict persists until June and the Strait of Hormuz remains blocked, estimating a 40% probability of this scenario. The Dallas Federal Reserve estimated on March 20 that a one-quarter closure of the strait would raise average West Texas Intermediate prices to $98 per barrel and lower global real GDP growth by an annualized 2.9 percentage points in the second quarter of 2026. Prolonged disruptions could lead to lasting price increases beyond the immediate crisis.
The economic fallout is severely impacting nations heavily reliant on energy imports, particularly in Asia and Africa. Sri Lanka, importing 60% of its energy needs, much of it through the Strait, is bracing for a new economic crisis. The government has implemented a QR-based fuel rationing system, allocating 20 litres per week for tuk-tuks, and has raised fuel prices by approximately 33% since the war's onset. To conserve fuel, Sri Lanka has also introduced a four-day working week, declaring every Wednesday a public holiday. Food prices are also expected to rise significantly in Asia, with nearly half of the world's urea fertilizer, crucial for agriculture, passing through the Strait of Hormuz.
Malaysia is also feeling the squeeze, with Prime Minister Anwar Ibrahim announcing a reduction in the monthly quota for subsidized RON95 petrol for individuals from 300 litres to 200 litres starting April 1. Food manufacturers in Malaysia are warning of potential factory closures or price hikes due to surging diesel costs, with frozen food prices potentially increasing by 10%. Diesel prices for non-subsidized users have soared by RM2.48 per litre in less than a month.
Across Africa, nations are experiencing a ripple effect with surging fuel prices, increased inflation, and pressure on local currencies. Import-dependent countries like Kenya and Ghana are particularly vulnerable, with some areas seeing fuel prices more than double. Somalia has witnessed tuk-tuk drivers abandoning their livelihoods as increased fuel costs deter passengers. Measures such as power rationing and even diluting petrol have been reported as countries attempt to cope.
Chinese analysts are closely monitoring the situation, weighing the risks of potential US ground operations in Iran. They assess that while such operations might constrain Tehran, the prospects for reopening the Strait of Hormuz remain "highly uncertain". The havoc on global shipping has also underscored China's urgent need to develop a robust domestic maritime insurance industry, currently dominated by European and US providers, to mitigate future strategic vulnerabilities. Concerns have also been raised in the US Congress regarding a proposed $20 billion taxpayer-funded maritime insurance proposal for the Strait of Hormuz, with questions about potential benefits to strategic competitors like China.
The immediate future remains precarious, with Iran having rejected a US 15-point peace plan and denying direct talks. The ongoing geopolitical standoff and the physical blockade of the Strait of Hormuz threaten to prolong the global energy crisis, pushing inflation higher and challenging economic stability worldwide. Countries are scrambling for alternative energy sources and implementing austerity measures, but a sustained disruption could lead to unprecedented economic hardship and significant shifts in global trade patterns.
ISN MEDIA
