Middle East conflict sparks global price surges, could reshape economy

The escalating conflict between the United States, Israel and Iran is sending shockwaves through global markets. Shipping through the Strait of Hormuz – a critical corridor for energy and commodity flows – has slowed sharply, triggering price surges in oil, gas, and key industrial and agricultural inputs, with potential long-term implications for the global economy.

Analysts warn that the crisis has extended far beyond the region. What began as an energy supply shock is now straining industrial and agricultural supply chains worldwide, highlighting vulnerabilities in global trade and raising concerns over inflation and growth.

Energy and commodity shocks

The Strait of Hormuz handles roughly 20 million barrels of oil per day, about 35% of global seaborne crude trade. The International Energy Agency has warned that disruptions could rival the combined impact of the 1970s oil crises and the post-Russia-Ukraine gas shock. Despite coordinated releases of strategic reserves, market anxiety persists amid fears of prolonged disruption.

Brent crude futures, which reflect market expectations, have risen about 36% since late February, reaching over $113 per barrel by March 27. Prices for physical oil from the Middle East, tracked by the Dubai benchmark, have surged 76% to $126 per barrel, with greater volatility. Analysts say Brent prices often drop temporarily when U.S. President Donald Trump hints at possible de-escalation, while the Dubai benchmark reflects actual supply constraints in the Gulf.

The energy shock extends beyond crude oil. Liquefied natural gas (LNG) markets are also under pressure, with prices in Japan and South Korea rising by 48%. Jet fuel costs are climbing sharply, along with niche commodities such as helium. Without relief, these increases could further fuel global inflation and weigh on economic growth.

In the United Kingdom, wholesale electricity and gas prices have surged following the conflict. According to energy consultancy Cornwall Insight Ltd., electricity bills have risen 10 to 30%, while gas contract prices are up 25 to 80% since late February. A Cornwall Insight spokesperson noted that many companies are operating on thin margins, making it difficult to absorb these energy cost increases.

Shipping costs

The shipping industry is also feeling the impact. A report by the European Federation for Transport and Environment (T&E) shows the global sector has faced over 4.6 billion euros ($5.3 billion) in additional fuel costs since February 28. 

Marine fuel prices at the Port of Singapore have climbed 223% since the start of the year, reaching 941 euros per tonne, while LNG prices have risen 72% since early March.

Scott Kirby, CEO of United Airlines, said jet fuel prices have nearly doubled within a month. A spokesperson for Lufthansa noted that demand for direct flights from Europe to Asia, avoiding Gulf stopovers, has surged along with ticket prices. In the long term, rising kerosene costs could push up global airfares.

Around 99% of global ships still rely on fossil fuels, making the sector highly vulnerable to price swings, according to the T&E report. Eloi Noé, shipping policy manager at T&E, said the current shock could serve as a catalyst for green shipping measures, which previously were seen as costly but now appear comparatively more viable.

Agriculture and food security

The Strait of Hormuz is also a key corridor for global fertilizer transportation. The Food and Agriculture Organization (FAO) warned that disruptions to this route have already affected global food security and the stability of agricultural supply chains.

According to FAO Chief Economist Maximo Torero, war-risk insurance premiums in Gulf waters have surged from 0.25% to as high as 10%. Urea prices have risen sharply, leaving farmers in many countries facing dual pressure from higher fertilizer and fuel costs.

Key fertilizer inputs, such as urea, ammonia and sulfur, have been largely produced in the Gulf region. Anticipated shortages have pushed up global prices. For example, QatarEnergy has halted urea production, while fertilizer plants in India, Pakistan and Brazil have been forced to cut output.

Torero noted that if tensions ease within a month, markets may gradually absorb the shock. However, prolonged supply disruptions could severely affect the next planting season. The FAO has urged countries to open alternative shipping routes, support import-dependent nations and avoid imposing food export restrictions, warning that such measures could exacerbate volatility in global food and energy markets.

Global economic implications

The Organization for Economic Co-operation and Development (OECD) warned in its latest outlook that Middle East uncertainty is testing global economic resilience. Persistently high energy costs could raise business expenses, drive inflation and slow growth. The OECD projects US growth to decline from 2.0% in 2026 to 1.7% in 2027, while eurozone growth may fall to 0.8% in 2026.

Meanwhile, Yemen's Houthi movement has signaled a possible intervention, raising concerns that the Bab el-Mandeb Strait could be disrupted, further affecting shipping and energy flows.

Li Zixin, assistant researcher at the China Institute of International Studies, told CMG in a recent interview that the crisis may accelerate structural shifts in the global economy. He highlighted risks from over-reliance on a single fossil fuel route, noting that supply chain disruptions may push global trade to prioritize security and resilience over efficiency, encouraging industrial diversification. The crisis is also putting pressure on the petrodollar system, potentially accelerating de-dollarization and diversification of the international monetary system.

"This conflict could become a catalyst for profound adjustments in global energy patterns, supply chain structures and the international financial order," Li said.