WASHINGTON (AP) — The continuing conflict between U.S. and Israeli forces against Iran has triggered massive price increases, darkened global economic forecasts, caused worldwide stock market turmoil and forced developing nations to implement fuel rationing and energy subsidies to shield their most vulnerable citizens.
Continued military strikes targeting Persian Gulf energy infrastructure including refineries, pipelines, natural gas facilities and shipping terminals threaten to extend worldwide economic hardship for months or potentially years ahead.
“A week ago or certainly two weeks ago, I would have said: If the war stopped that day, the long-term implications would be pretty small,” said Christopher Knittel, an energy economist at the Massachusetts Institute of Technology. “But what we’re seeing is infrastructure actually being destroyed, which means the ramifications of this war are going to be long-lived.”
Iranian forces targeted Qatar’s Ras Laffan liquefied natural gas facility, which handles 20% of global LNG production. The March 18 attack eliminated 17% of Qatar’s natural gas export capabilities, with state-owned QatarEnergy estimating repairs could require up to five years.
Energy markets faced immediate disruption when the conflict began. Following U.S. and Israeli military action on Feb. 28, Iran retaliated by essentially blocking the Strait of Hormuz, a critical shipping route for one-fifth of global oil supplies, by threatening vessels attempting passage.
Regional oil producers including Kuwait and Iraq reduced output because their petroleum had no viable export route without strait access. The elimination of 20 million daily oil barrels created what the International Energy Agency describes as the “largest supply disruption in the history of the global oil market.”
Brent crude oil prices increased 3.4% Friday, closing at $105.32 per barrel, up from approximately $70 before hostilities commenced. U.S. benchmark crude jumped 5.5% to close at $99.64 per barrel.
“Historically, oil price shocks like this have led to global recessions,” Knittel said.
The conflict has also revived concerning economic parallels to the 1970s oil crises and stagflation.
“You’re raising the risk of higher inflation and lower growth,” said the Harvard Kennedy School’s Carmen Reinhart, a former World Bank chief economist.
Gita Gopinath, former chief economist at the International Monetary Fund, recently wrote that global economic growth, expected before the war to register 3.3% this year, would be 0.3 to 0.4 percentage points lower if oil prices averaged $85 a barrel in 2026.
The Persian Gulf region exports significant quantities of two essential fertilizers, accounting for one-third of global urea and one-quarter of ammonia production. Regional manufacturers benefit from convenient access to inexpensive natural gas, the primary component for nitrogen-based fertilizers.
As much as 40% of worldwide nitrogen fertilizer exports travel through the Strait of Hormuz.
With the waterway now inaccessible, urea costs have risen 50% since fighting began, while ammonia prices increased 20%. Major agricultural nation Brazil faces particular vulnerability since it imports 85% of its fertilizer needs, Alpine Macro commodity strategist Kelly Xu wrote in a commentary. Egypt, despite being a significant fertilizer manufacturer, requires natural gas for production and struggles when supplies become inadequate.
Eventually, elevated fertilizer costs will likely increase food prices and reduce availability as farmers use less and achieve lower crop yields. Food supply constraints will impact families in poorer nations most severely.
The war has also disrupted global helium supplies, a natural gas byproduct essential for semiconductor manufacturing, rocket production and medical imaging equipment. Qatar produces helium at the Ras Laffan complex and supplies one-third of world helium needs.
“No country will be immune to the effects of this crisis if it continues to go in this direction,” International Energy Agency head Fatih Birol said on March 23.
Developing countries will suffer the most severe impacts and face the greatest energy shortages “because they will be outbid when competing for the remaining oil and natural gas,” said Lutz Kilian, director of the Center for Energy and the Economy at the Federal Reserve Bank of Dallas.
Asian nations face particular exposure since more than 80% of oil and LNG transiting the Strait of Hormuz reaches that region.
In the Philippines, government facilities now operate only four days weekly, with officials required to limit air conditioning to temperatures no lower than 75°F (24°C). Thai public employees have been instructed to use stairs rather than elevators.
India ranks as the world’s second-largest liquefied petroleum gas importer for cooking purposes. The Indian government prioritizes household allocation over commercial use while absorbing most price increases to maintain affordability for low-income families.
However, LPG shortages have compelled some restaurants to reduce operating hours, temporarily close or eliminate energy-intensive menu items like curries and fried foods.
South Korea, heavily reliant on energy imports, has restricted government employee vehicle use and reinstated fuel price controls abandoned during the 1990s.
The United States, as the world’s largest economy, enjoys some protection from these impacts.
As an oil exporter, American energy companies benefit from elevated prices. Additionally, domestic LNG costs remain lower than international markets because U.S. export facilities operate at full capacity. Since America cannot increase LNG exports beyond current levels, natural gas remains domestically available, maintaining stable supplies and prices.
Nevertheless, rising gasoline costs burden American consumers already dealing with high living expenses. AAA reports average gasoline prices have climbed to nearly $4 per gallon from $2.98 one month earlier.
“Nothing weighs more heavily on consumers’ collective psyche than having to pay more at the pump,” Mark Zandi, chief economist at Moody’s Analytics, and his colleagues wrote in a commentary.
The U.S. economy already showed weakness, growing at just 0.7% annually from October through December, down from a robust 4.4% from July through September. Employers unexpectedly eliminated 92,000 positions in February and added only 9,700 monthly in 2025, representing the weakest hiring outside recession since 2002.
Gregory Daco, chief economist at EY-Parthenon, has increased U.S. recession probability over the next year to 40%. Normal-times risk stands at just 15%.
The global economy has demonstrated resilience against repeated challenges including the pandemic, Russia’s Ukraine invasion, renewed inflation and the elevated interest rates required to control it.
Initial optimism suggested the world could overcome Iran war damage as well. However, those expectations diminish as threats to Gulf energy infrastructure persist.
“Some of the damage to LNG facilities in Qatar done will likely take years to repair,” said the Dallas Fed’s Kilian, who also noted necessary repairs to refineries in countries like Kuwait and tankers in the Gulf that must be re-provisioned and stocked up with marine fuel. “The process of recovery will be slow even under the best circumstances.”
“There is no economic upside to the conflict with Iran,” Zandi and his colleagues wrote. “At this point, the questions are how much longer the hostilities will continue and how much economic damage they will cause.”
