Global households under strain as Iran war sparks historic oil shock

The ongoing US-Israeli war with Iran is exerting heavy economic pressure on global markets and households as severe restrictions on the Strait of Hormuz disrupt energy supplies, triggering what the International Energy Agency (IEA) says is the largest oil supply shock in history.

The strategic waterway, through which roughly 25% of global seaborne oil trade passes, has become a key flashpoint since the US and Israel launched a military campaign against Iran on February 28. Tehran has retaliated with strikes and blocked passage through the strait, showing no signs of relenting so far.

An IEA report said global supply is expected to drop by 8 million barrels per day in March – nearly 8% of world demand due to the blockage. This has forced substantial production curtailments across the Middle East, with major operators shutting in or reducing output. French energy giant TotalEnergies announced it has halted or is halting operations in offshore fields in Qatar, Iraq and the UAE, impacting around 15% of its global oil and gas production. Abu Dhabi's Ruwais refinery, the largest single-site refinery in the Middle East, has also been temporarily closed following a drone attack, Reuters reported.

Brent crude futures have surged dramatically, closing above $100 per barrel for two consecutive days since Thursday and reaching highs near $104. This represents a more than 40% increase since before the conflict, driving up fuel costs worldwide and fueling inflationary pressures.

In the US, gasoline prices have risen sharply, with the national average climbing over 20% in just two weeks, according to the American Automobile Association (AAA), reaching levels not seen since 2024. Energy industry executives have reportedly urged the government to end the conflict swiftly to mitigate further damage, while Democrats and some Republicans in Congress warned of widespread economic fallout.

Across the Atlantic, surging fuel prices have eroded household purchasing power in the eurozone. Economists from ING noted that the burden on families – filling a tank now rivals the pain of the 2022 energy crisis – is compounding already weak consumer confidence and dampening spending in an economy grappling with low growth.

The crisis has prompted the IEA's 32 member countries to unanimously approve the largest-ever coordinated release of emergency oil reserves, pledging 400 million barrels to global markets. This action, the sixth in IEA history, aims to offset shortages and stabilize prices. Key contributions include 172 million barrels from the US over about 120 days, 80 million barrels from Japan, 22.46 million barrels from South Korea and 23.6 million barrels from Canada.

Despite these measures, analysts warn of uneven and potentially lasting global fallout. Higher energy costs are transmitting through supply chains, raising transportation, manufacturing and food prices while unsettling financial markets. Emerging economies and import-dependent nations are especially vulnerable to sustained high prices, which could prolong inflation and slow recovery. Some forecasts suggest that if disruptions persist, oil could average well above pre-conflict levels through much of 2026, with risks of broader recessionary pressures.

While in the conflict zone, tensions remain high as rhetoric sharpens and air raids push into uncharted territory. On Friday, US President Donald Trump announced strikes on military targets on Iran's Kharg Island, which handles about 90% of the country's crude exports, while warning that its oil infrastructure could be targeted if passage through the Strait of Hormuz is further impeded. This came a day after Iran's new Supreme Leader Mojtaba Khamenei vowed to keep blocking the strategic chokepoint.