As the conflict between the US-Israel alliance and Iran enters its fifth week, the world economy is grappling with a severe energy shock. Global oil prices have jumped sharply, with Brent crude surpassing $115 per barrel and on track for its largest monthly gain on record.
The spike in energy costs is not a random occurrence but a direct result of several intersecting factors triggered by the war. Below is an analysis of why fuel and gas prices rise during such conflicts.
Supply disruptions
The most fundamental reason for price hikes is the disruption of production. Not every country possesses oil mines; the world relies heavily on the Middle East, the US, and Russia. When war breaks out in these regions, production often halts due to military strikes or safety concerns. For instance, QatarEnergy recently stopped production at some plants following strikes.
Furthermore, Iraq, the second-largest producer in OPEC, has already reduced production by 700,000 barrels at the Rumaila field and 460,000 barrels at West Qurna 2. When supply falls while global demand remains constant, prices naturally skyrocket.
Strategic chokepoints
Oil and gas are transported via sea routes and pipelines, known as the supply chain. During the current war, the Strait of Hormuz – the “main artery” through which 20% of the world’s oil and gas usually passes – has come to a near standstill.
Daily traffic through the strait has plummeted from over 100 vessels to fewer than five ships as Iran threatens to attack transiting vessels. Additionally, Houthi rebels in Yemen have targeted Israel and threatened the Bab al-Mandeb strait; a blockade there could hit another 10% of the world’s oil supply.
Risk and the price spiral
International oil prices are determined in markets like London and New York. During wartime, uncertainty drives these markets –
Hoarding: Fearful of future shortages, countries begin stockpiling fuel, creating “artificial demand” that further drives up prices.
Geopolitical risk: Analysts suggest prices could hit $200 a barrel if US escalation damages Iranian export facilities. Samantha Gross of the Brookings Institute noted that markets are currently underestimating the war’s potential duration.
Infrastructural damage
Physical damage to energy hubs, such as threats to Iran’s Kharg Island fuel hub, creates long-term supply fears.
Shipping expert Lars Jensen warns that even if waterways reopened tomorrow, prices would continue to rise because the oil loaded prior to the crisis is only now reaching refineries.
Even after a conflict ends, repairing damaged energy infrastructure can take months, maintaining high prices indefinitely.
Cascading impacts
The impact of rising fuel prices extends far beyond the petrol pump –
Food and Fertiliser: Roughly 20% to 30% of the world’s seaborne fertiliser originates from the Gulf. Its disruption leads to rapidly escalating food prices, particularly in poorer nations.
Manufacturing: Moody’s analysts warned that rising oil prices push up transportation and manufacturing costs at a time when global demand is already fragile.
In an interdependent energy system, conflict in one region swiftly translates into economic strain worldwide. What drives fuel prices is not only disrupted supply, but also uncertainty, anticipation, and systemic vulnerability. As long as instability persists, the global economy will continue to absorb the cost of a war it cannot contain.
