From oil to food to markets: How a month of war on Iran has remade the world economy

The ongoing military conflict between the U.S. and Israel against Iran is sending ripples through the global economy, causing significant disruptions across various sectors. As oil prices soar above $100 per barrel—up from $70 prior to the conflict—gas prices in the U.S. are nearing $4 per gallon, the highest level since the onset of the Ukraine crisis. Countries like the Philippines and India are experiencing fuel shortages, with citizens waiting in long lines due to government rationing measures. Fatih Birol, head of the International Energy Agency, warned that no country would escape the economic repercussions if this situation persists, highlighting the potential for inflation to rise, which could lead to increased interest rates and a looming recession. Some economists are sounding alarms about a potential return to stagflation, reminiscent of the 1970s, where high inflation coincides with stagnant economic growth and rising unemployment. The conflict is also impacting critical supply chains for helium—integral for semiconductor chips in the AI sector—and fertilizers, which could lead to increased grocery prices in the near future. President Trump has framed the war as a necessary measure against Iran's alleged threats, including its missile capabilities and nuclear ambitions. However, Iran’s resilience suggests that the duration of the conflict may hinge on how much economic strain the world can endure. The conflict has caused global oil prices to spike, largely due to disruptions in the Strait of Hormuz, a vital waterway for oil and liquefied natural gas transport. Damage to key oil hubs in the Middle East has further exacerbated the situation, with Brent crude reaching $112.57 and West Texas Intermediate at $99.64 at last week's market close. In the U.S., average gas prices surged from $2.98 in February to $3.98 recently, prompting some nations to implement rationing strategies. The Philippines has adopted a four-day workweek for federal employees to conserve fuel, while Pakistan has also taken steps to limit oil consumption. In response to the crisis, the International Energy Agency released 400 million barrels of oil from reserves, labeling the conflict as causing the most significant supply disruption in the history of the global oil market. Stock markets have begun to react, with major indices like the Dow and Nasdaq entering correction territory, raising concerns about the economic outlook. Despite the grim market conditions, some experts believe the economic fundamentals driven by advancements in AI and tax reforms could keep optimism alive. Apollo Global Management's chief economist, Torsten Sløk, suggested that the current crisis may not be severe enough to overshadow these positive trends. The airline industry has also felt the immediate effects of the conflict, with airspace closures leading to canceled or rerouted flights, leaving many travelers stranded. Jet fuel prices have surged, resulting in higher ticket prices for consumers. Moreover, other commodities, including sulfur—crucial for metal extraction and fertilizer production—are facing supply chain challenges, which could impact both the agricultural sector and the tech industry. A resolution to these disruptions may require diplomatic negotiations involving the U.S., Israel, and Iran, but for now, a peace agreement appears distant.