Strait of Hormuz Under Siege: A Double Shock to Global Energy Markets

People visit Hormuz Island in the Strait of Hormuz off the Iranian city of Bandar Abbas (File photo – AFP)
People visit Hormuz Island in the Strait of Hormuz off the Iranian city of Bandar Abbas (File photo – AFP)
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Strait of Hormuz Under Siege: A Double Shock to Global Energy Markets

People visit Hormuz Island in the Strait of Hormuz off the Iranian city of Bandar Abbas (File photo – AFP)
People visit Hormuz Island in the Strait of Hormuz off the Iranian city of Bandar Abbas (File photo – AFP)

Global energy markets are on maximum alert following the military escalation in the Middle East. The outbreak of direct confrontation between the United States and Israel on one side and Iran on the other has effectively paralyzed shipping through the Strait of Hormuz - the vital artery that carries more than 20 percent of the world’s oil and gas supplies - fueling fears of a major supply shock.

How quickly oil tanker traffic resumes normal operations through the strait is now critical. Roughly one-fifth of global oil production and a similar share of liquefied natural gas transit the narrow waterway.

Estimates from JPMorgan suggest that a 25-day halt in tanker traffic would fill storage tanks in producing countries to capacity, forcing them to cut output.

On Monday, in the first trading session since Saturday’s attack, oil prices surged sharply. Brent crude, the international benchmark, jumped as much as 13 percent to trade above $82 a barrel, its highest level since January 2025.

At the same time, insurers announced the cancellation of some policies covering vessels operating in the region. Meanwhile, S&P Global Platts, a leading provider of oil price assessments, suspended bids and offers for Middle Eastern refined product benchmarks that pass through the Strait of Hormuz, citing shipping disruptions linked to the US-Iran conflict. The agency added that it is reviewing its pricing methodology for Middle Eastern crude.

Gas Crisis Deepens

The turmoil has not been limited to oil. Natural gas markets have also been jolted, with European prices jumping more than 30 percent after QatarEnergy announced a suspension of production and exports.

Qatar’s Ministry of Defense said an Iranian drone targeted an onshore gas processing facility in Ras Laffan Industrial City, forcing operations to halt.

The impact is particularly severe for Europe, which relies on Qatar as a strategic alternative to Russian gas. Ole Hvalbye, a commodities analyst at SEB, said disruption to flows through Hormuz, which account for about 20 percent of global LNG supplies, would spark fierce competition between Asian and European buyers for US cargoes, driving prices sharply higher across the Atlantic basin.

The direction of prices now depends largely on how long the conflict persists. Analysts say the base-case scenario hinges on political developments in Tehran, where the international community hopes for either a significant leadership shift or US diplomatic intervention to de-escalate tensions within one to two weeks.

However, if prices remain elevated for a prolonged period, the risk of a renewed global inflation surge looms, placing central banks in a historic bind between curbing inflation and supporting economic growth.

Asia at the Epicenter

Asia - widely regarded as the engine of global growth - now finds itself at the heart of the crisis. The region is the most exposed to the fallout from the Middle East conflict due to its heavy dependence on Gulf oil and gas supplies. This is not merely a trade disruption; it is a direct challenge to energy security across Asian capitals.

Countries such as Japan, South Korea and India rely heavily on Middle Eastern shipping lanes to secure their energy needs. In Japan, around 70 percent of imported oil passes through the Strait of Hormuz, leaving the country highly vulnerable to geopolitical tensions in the corridor. China, despite diversifying its suppliers, remains the largest buyer of Iranian crude and Qatari LNG, making the security of these flows critical to its industrial economy.

Asian governments are now scrambling to reassess their strategic reserves.

If the conflict turns into a prolonged war of attrition, countries such as Japan and South Korea could face an unenviable choice: draw down reserves that may prove difficult to replenish quickly, or accept soaring spot market prices.

With Qatari LNG supplies disrupted, Asia has already entered into intense competition with Europe for US and Australian cargoes. The scramble for alternative supplies is tightening global availability and sharply increasing energy costs across emerging Asian economies.

For India and several Southeast Asian nations, higher prices mean an immediate rise in import bills, placing heavy pressure on balance-of-payments positions and fueling imported inflation that could undermine growth targets for the year.

The strain extends beyond crude oil. Asia’s refineries - the largest in the world - depend heavily on medium and heavy Middle Eastern grades. A sustained disruption in these supplies could force refiners to cut processing rates, leading to shortages of diesel, gasoline and jet fuel within the region itself, with knock-on effects for transportation and logistics.



World Bank Chief to Asharq Al-Awsat: No One Can Gauge Fallout of the Regional Escalation

World Bank President Ajay Banga visits the Geyushi bus manufacturing factory to review projects funded by the lender and assess how economic reforms are translating into job creation, in the 10th of Ramadan suburb of Cairo, Egypt, March 3, 2026. (Reuters)
World Bank President Ajay Banga visits the Geyushi bus manufacturing factory to review projects funded by the lender and assess how economic reforms are translating into job creation, in the 10th of Ramadan suburb of Cairo, Egypt, March 3, 2026. (Reuters)
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World Bank Chief to Asharq Al-Awsat: No One Can Gauge Fallout of the Regional Escalation

World Bank President Ajay Banga visits the Geyushi bus manufacturing factory to review projects funded by the lender and assess how economic reforms are translating into job creation, in the 10th of Ramadan suburb of Cairo, Egypt, March 3, 2026. (Reuters)
World Bank President Ajay Banga visits the Geyushi bus manufacturing factory to review projects funded by the lender and assess how economic reforms are translating into job creation, in the 10th of Ramadan suburb of Cairo, Egypt, March 3, 2026. (Reuters)

Rising geopolitical tensions are clouding the outlook for growth, inflation and capital flows across the Middle East, raising questions about the region’s ability to absorb fresh shocks.

Instability is not good for any region, World Bank President Ajay Banga told Asharq Al-Awsat, saying the scale of the fallout hinges on one factor: how long this escalation continues.

Banga was speaking on Tuesday on the sidelines of a visit to a factory in 10th of Ramadan City, northeast of Cairo.

He was responding to questions by Asharq Al-Awsat about the impact of the current escalation, the risk of disruption to the Strait of Hormuz, the possibility of oil prices topping $100 a barrel, and the implications for global growth, inflation and capital flows to emerging markets in 2026.

The answers, he said, are interlinked. The duration of the disruption will determine the depth of the economic impact.

Egypt offers a case in point. In recent years, it has navigated successive waves of uncertainty, from the COVID-19 pandemic to global volatility and, more recently, pressures linked to Suez Canal revenues, said Banga.

It is not hard to imagine the scale of challenges that creates for economic development, he added, pointing to strains on public finances, the currency and inflation in an unsettled global environment.

Fears are mounting that widening tensions in the Middle East could rattle energy markets and global supply chains. A sustained surge in oil prices would feed directly into higher global inflation, leaving central banks balancing price stability against growth.

At the same time, tighter global financial conditions could slow capital flows to emerging markets that depend, to varying degrees, on external financing and foreign investment.

On the short and medium term, Banga suggested the damage could be contained if instability proves short-lived.

Prolonged tensions, however, would amplify the pressure, he warned. The World Bank’s approach is to frame its outlook around time-based scenarios rather than issue numerical forecasts amid uncertainty.

Regarding Egypt, Banga said the World Bank continues to work with the government through a broad package of programs that extends beyond financing to support business and governance reforms and strengthen the private sector.

The cooperation spans physical infrastructure and investment in human capital to help generate sustainable jobs.

During his Cairo visit, Banga toured a Social Housing Project in 10th of Ramadan City and electric bus manufacturing lines. He described the housing project as among the largest globally in ambition and scale, noting that many beneficiaries are first-time buyers under 40.

Key lessons, he said, include government ambition, building a mortgage market and promoting financial inclusion - pillars he sees as essential to empowering young people and expanding home ownership.

More broadly, Banga linked infrastructure investment in housing, transport and energy to bolstering emerging economies against external shocks. Diversifying growth and backing sectors such as agriculture, tourism and manufacturing can help cushion volatility in energy markets and global trade.

The World Bank’s message, as outlined by its president, is clear: instability carries risks, but forecasts must be tempered by uncertainty over timing.

Whether 2026 is shaped by a brief disruption or a prolonged crisis will depend on how long tensions persist. Until then, resilience, structural reform and a stronger private sector remain central to weathering the storm in Egypt and across the region, Banga said.


IMF: Mideast War Economic Impact to Depend on Duration, Damage, Energy Cost

FILE PHOTO: A view of the International Monetary Fund (IMF) logo at its headquarters in Washington, D.C., US, November 24, 2024. REUTERS/Benoit Tessier/File Photo
FILE PHOTO: A view of the International Monetary Fund (IMF) logo at its headquarters in Washington, D.C., US, November 24, 2024. REUTERS/Benoit Tessier/File Photo
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IMF: Mideast War Economic Impact to Depend on Duration, Damage, Energy Cost

FILE PHOTO: A view of the International Monetary Fund (IMF) logo at its headquarters in Washington, D.C., US, November 24, 2024. REUTERS/Benoit Tessier/File Photo
FILE PHOTO: A view of the International Monetary Fund (IMF) logo at its headquarters in Washington, D.C., US, November 24, 2024. REUTERS/Benoit Tessier/File Photo

The Middle East war's impact on the global economy will depend on its duration and damage to infrastructure and industries in the region, particularly whether energy price increases are short-lived or persistent, the International Monetary Fund's number ⁠two official said on ⁠Tuesday.

IMF First Deputy Managing Director Dan Katz told the Milken Institute Future of Finance conference in Washington ⁠that the conflict "certainly has the potential to be very impactful on the global economy across a range of across a range of metrics, whether it's inflation, growth and so on. But it's very early ⁠at this ⁠point to, you know, have any sort of firm conviction about what the likely impact is going to be."

Katz added that the economic impact will follow from the geopolitical developments and the persistence of the conflict.


Iraq Could Widen Oil Production Cut to More Than 3 Million bpd Within Days

FILE PHOTO: The company logo of Lukoil is seen at the West Qurna 2 oilfield in Iraq's southern province of Basra, March 29, 2014. REUTERS/Essam Al-Sudani/File Photo
FILE PHOTO: The company logo of Lukoil is seen at the West Qurna 2 oilfield in Iraq's southern province of Basra, March 29, 2014. REUTERS/Essam Al-Sudani/File Photo
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Iraq Could Widen Oil Production Cut to More Than 3 Million bpd Within Days

FILE PHOTO: The company logo of Lukoil is seen at the West Qurna 2 oilfield in Iraq's southern province of Basra, March 29, 2014. REUTERS/Essam Al-Sudani/File Photo
FILE PHOTO: The company logo of Lukoil is seen at the West Qurna 2 oilfield in Iraq's southern province of Basra, March 29, 2014. REUTERS/Essam Al-Sudani/File Photo

Iraq has cut oil production by nearly 1.5 million barrels a day and those cuts could widen to more than 3 million bpd within days as the country runs out of storage and cannot export crude due to the Iran crisis, two Iraqi oil officials told Reuters on Tuesday.

As of Tuesday, Iraq has cut production from the Rumaila oil field by 700,000 bpd, from the West Qurna 2 field by 460,000 bpd and from the Maysan field by 325,000 ⁠bpd, the officials, ⁠who did not wish to be named, said.

That output cut could grow to over 3 million bpd if oil tankers cannot move freely through the Strait of Hormuz and reach loading ports, they added.

The oil ministry said later in the day that the reduction in its crude oil production, owing to the halt in exports after the closure of the Strait of Hormuz, ⁠would not affect operations at its refineries, state media reported.