How the US-Israel War with Iran is Disrupting Global Trade and Economic Partnerships
March 16, 2026 - Written by James Murphy
The Persian Gulf has been engaged in conflict that has stifled the economic growth of several countries such as Qatar, Iraq and Iran. However, the region comes with massive economic potential, supplying over 20% of global gas exports, 20 million barrels of oil, 10% of the world’s aluminium, and 35% of the world’s methanol through the Strait of Hormuz to Europe, Asia, and Oceania.
Following the breakdown of negotiations between the US and Iran over Iran’s nuclear enrichment programme, the US and Israel conducted airstrikes against Iran and killed Supreme Leader Ali Khamenei. Iran carried out retaliatory strikes across all the region with explosions reported in Israel, Syria, Saudi Arabia, Kuwait, Bahrain, and the United Arab Emirates. Iranian-backed groups in Iraq began ground and drone strikes against US bases and Hezbollah began firing missiles into Israel.
Iran’s targeting of US bases and critical infrastructure in Gulf Cooperation Council (GCC) states is due to weaker defences and the potential for the GCC to pressure the US to cease military operations. The conflict has already seen condemnation from both EU leaders and the UN Secretary General citing the broader regional dangers it poses and the violations of international law. While these voices of opposition discuss the political, strategic, and moral arguments for why the US and Israel should cease their military actions against Iran, they are intrinsically linked to economic concerns over the war. Therefore, the following is a discussion of the economic implications for the Middle East and beyond.
Contextual Analysis
Iran has routinely been subjected to instances of economic isolation. They have experienced a loss of allies with the Israeli attacks on Hezbollah leadership and the toppling of Assad’s regime in Syria, and have faced international condemnation of the violent killing of thousands of protestors in recent months, and have seen their trading partners threatened with tariffs from the US.
Last month’s negotiations were rife with complications. Iran stated that the nature of the protests and their ballistic missile capabilities were off the table. However, signs of progress were seen as Iran expressed willingness to accept nuclear restrictions in exchange for the lifting of economic sanctions and partnerships over oil and metal exports. Iran even attempted to lure Donald Trump with financial dividends from its energy industry in exchange for a nuclear deal. Despite progress made, the US and Israel immediately conducted airstrikes against nuclear sites, air defence systems, and political institutions with fatal effects for Iranian leadership. The resulting air and drone strikes between the belligerents have been felt among critical and civilian infrastructure and military bases across the region.
The economic effects have already been felt across the world. The Iranian blockade of the Strait of Hormuz removed 20 million barrels of oil from global markets, driving international oil prices up to an initial 13% at $82.37 a barrel after the first 24 hours, then to 28% at $92.96 by the end of the first week of the conflict.
China faces significant energy risks as roughly half of its oil imports pass through the Strait of Hormuz. Any disruptions threaten industrial production, national power grids, and manufacturing output. Prolonged instability in the Persian Gulf could slow economic growth and place additional strain on China’s energy security.
Iranian attacks on Saudi Aramco infrastructure have forced the temporary shutdown of one of the kingdom’s largest refineries. This disruption threatens oil revenues at a time when Crown Prince Mohammed bin Salman’s Vision 2030 programme requires substantial investment. Continued instability could delay Saudi Arabia’s economic diversification plans.
Japan’s heavy reliance on imported energy has already produced financial consequences. The Yen has weakened against the US dollar, raising the cost of energy imports and increasing inflation risks. Japanese officials have warned that continued volatility could lead to severe financial market instability.
Thailand, India, South Korea, and the Philippines are highly dependent on imported oil from the Gulf, leaving them vulnerable to supply disruptions and rising energy prices. Increased import costs could raise inflation, strain trade balances, and increase operational costs across manufacturing, transportation, and electricity generation sectors.
The liquid natural gas (LNG) industry has also suffered from price spikes and supplies shortages. In less than three days since the first airstrikes on Iran, Benchmark British and Dutch wholesale gas prices soared to nearly 50% while benchmark Asia prices increased by 39%. This is not just due to Iran’s blockade in the Strait, but due to drone strikes against QatarEnergy’s facility in Ras Laffan. QatarEnergy, the world’s largest single exporter of LNG accounting for 20% of global exports, halted production over security concerns. Rising LNG prices could increase electricity generation costs, raise household energy bills, and place pressure on energy-sensitive industries such as chemicals, fertiliser production, steel manufacturing, and power generation. Import-reliant countries in Asia and Europe such as India, Pakistan, Belgium, and Italy are set to be hit the hardest.
Non-fuel-related commodities are also being hit hard. In 2025, the Middle East accounted for 23% of aluminium exports according to the International Aluminium Institute. The price of aluminium jumped an initial 4% after the first two days of conflict, and Citi have increased the price from $3400/mt to $3600/mt with consideration to raise prices to $4000/mt. Sustained price increases could raise production costs for construction, electronics, and and automotive manufacturing - translating into higher costs for consumer goods and infrastructure projects.
Iran is the world’s second-largest methanol producer. Methanol rose by an initial 4% after the first few days of conflict, and rose to a 7% increase by the end of the first week. Steel and copper supply chains are also being affected, as copper shipping operators such as Cosco and Maersk suspend transits and the EU steel market reports varying higher costs and longer delivery times. This combined effect on commodities will have large overarching impacts on the consumer product, industrial, manufacturing, chemical, and fertiliser markets.
Main Arguments
The expanding conflict between the US-Israel alliance and Iran’s Axis of Resistance is most concerning due to the unpredictability of the final effects. The energy markets have all seen increased prices and volatility, yet there are many arguments on both sides about just how worried we should all be about the rising prices.
The oil industry has close ties to the defence industry and national militaries, and subsequently non-state militant actors. For this reason, some analysts believe that the ‘buffers’ within the oil industry will be enough to stop the volatility from reaching levels of mass economic concern. China currently has record-high oil stocks, while OECD nations are required to hold back 90 days worth of oil supply. This coincides with the 32 member countries of the International Energy Agency releasing 400 million barrels of oil for emergency reserves, the largest release of reserves in the agency’s history.
Moreover, the UAE’s ADCOP and Saudi Arabia's East-West Pipeline could be used to reroute oil, albeit not to the extent that can be transported by ship. This could mean that the spike in oil prices could be short-term, supported by the Financial Times reporting that, on the 10th day of the conflict, oil fell back below $90 after previously reaching $119 - the highest price since 2022. While Oxford Economics reports that a long-term closure of the Strait of Hormuz could cause spikes as high as $130 a barrel, the decrease in price back below $90 a barrel would signal that the oil industry and the world’s leading economies are well-positioned to deal with the spikes in price.
The LNG market unfortunately does not have the same strength in its buffers. The suspension of production from QatarEnergy has exposed serious concerns over the supply of LNG. Many OECD nations do not have the same storage of LNG as they do for crude oil.
As it stands, the average EU member state has LNG storage sitting at 30% capacity according to Gas Infrastructure Europe. This fluctuates immensely, with Belgium’s supply being as low as 25% while Italy and Poland are 47% and 50%. That being said, Italy receives 30% of their LNG from Qatar while Poland imports 17% of their LNG from Qatar. Among the most severe storage issues in the United Kingdom, as the Guardian reported on 08/03/2026 that the UK currently has only two days worth of natural gas stored. As a result, economies across Europe, the Middle East, and Asia will need to brace for rises in household utility bills and operational costs for industry. This can cause inflationary effects and societal discontent ranging from rising support for opposition parties to protests and civil unrest.
However, several organisations such as Stanford University’s Centre for Fuels for the Future and Oxford Economics have stated that the closure of QatarEnergy would bring volatility to energy markets but a crisis is unlikely. While EU economies are expressing concerns, EU Energy Commissioner Dan Jørgensen has commended the efficiency and value of Azerbaijani gas through the Southern Gas Corridor. Several key EU economies such as France and Germany rely on Norwegian pipeline gas over Qatari gas. The US imports are helping keep the average supply stable at 30%. Therefore, while certain Asian and European will struggle with gas supply and prices continue to rise, it is possible that the current alternatives to QatarEnergy are enough to stop the conflict from reaching crisis levels in LNG markets. Martin Wolf claims that European gas prices could hit €120/MWh if the war were to last more than 3 months, bringing new tests to the resolve of the EU shown by their adjustment to the higher gas prices brought on by the Ukraine War.
Key Stakeholders
Iran - Iran’s retaliatory strikes against US and Israeli bases, attacks on critical infrastructure across the Middle East, blockade of the Strait of Hormuz, and leadership of the Axis of Resistance all prove they have the power to exacerbate the conflict and the resulting volatility in the energy market. Iran’s economy will suffer from their own lack of trade as a result of the conflict, which alongside airstrikes and civil unrest will lead to domestic instability. The conflict will also hinder the progress they had made in improving relations with other Gulf nations.
United States - The news of the US-Israeli bombing of a primary school in Southern Iran killing around 150 and the unilateral decisions made by executive branches of government have led to criticism and accusations of violations of international law. This may upset American trade relations with their partners. However, with 20 million barrels of oil removed from the global market, the US’s newly-acquired Venezuelan oil could be used to offset losses incurred from the conflict and mitigate market volatility. The US is also in a strategically bad position. Ariel imagery from PlanetLabs has been delayed up to 14 days adding disruption to global media, and US bases have been attacked with fatalities reported. Despite the efforts of the Trump Administration, the US’s reputation for strength and deterrence in the region can be called into question.
Gulf Cooperation Council - GCC states have reportedly had their infrastructure targeted due to the weaker defences that they possess compared to US and Israeli military bases. This tactic could potentially drive GCC states to pressure the US to cease attacks less it hamper the economic development the region is striving to achieve with US investment.
Israel - Israel’s Iron Dome defence systems have been tested by Iran’s missiles and have seen their infrastructure and military forces damaged as a result. Moreover, Israel's history of unilateral strikes against Iran and their threats to regional stability have faced intense scrutiny from their neighbours. The continuation of the conflict will affect their economy beyond fluctuating energy prices as their reputation for military adventurism will hurt their progress towards cooperation with initiatives such as the Abraham Accords. Israel is also facing domestic issues. Tel Aviv-based cyber security firm Check Point have reported that Iran has made hundreds of hacking efforts into government and financial institutions in Israel, and the government have extended their censorship efforts to prevent filming of drone or missile strikes. This highlights Israel’s insecurity and fears of societal discontent within their boarders, and suggests weakness in their military capabilities.
EU - EU nations are faced with the likelihood of rising costs for household utility and industrial production. Russia has stated that it is willing to begin exporting oil and gas to European nations, however many EU countries have been avoiding it since the War in Ukraine began, fearing public backlash. Rising oil prices and reliance on US imports will put them in a position of dependency, steel prices are fluctuating enough to provide stable statistics on pricing, and Azerbaijani and Norwegian LNG providers are not capable of fulfilling the bloc’s energy needs. EU leaders will need to pursue policies that lead to as quick an end to the conflict as possible to protect their investments and energy industry.
African Union - The AU will need to keep a close monitor on the situation in the Middle East. Iran’s ties to the Houthis in the Red Sea, Al-Shabaab’s opposition to Israel, and the potential for AU member states to benefit from increased oil exports all have the potential for the security and economic implications of the Persian Gulf to extend to the African continent.
Opportunities & Risks
Opportunities
Asian energy providers have the opportunity to increase their market share in the midst of the loss of supply from the Strait of Hormuz. Malaysia is an exporter of both oil and gas, and could potentially benefit from the elevated oil prices and supply issues of neighbouring countries such as Thailand, India, Korea, and the Philippines. This could raise Malaysia’s GDP for the following year, lead to several bilateral trade agreements over oil exports for South East Asia, and make the global oil markets more competitive in the long-run
The Norwegian gas pipeline and the new influx of LNG from Azerbaijan opens up the possibility of new EU trade agreements beyond Gulf LNG producers such as QatarEnergy. The price spikes in LNG may also motivate European nations to increase their stores of LNG to avoid any further complications associated with energy and conflict.
Risks
The disruption in maritime trade has not been restricted to the Strait of Hormuz. Ships are also diverted away from the Suez Canal-Red Sea shipping route which connects European, African, and Asian markets. While currently in a ceasefire with Israel, the Houthis in Yemen are an Axis of Resistance member which has been slated for ‘gradual activation as part of a controlled escalation strategy. As the Suez Canal accounts for 30% of global shipping and 15% of global trade, a reignited conflict could bring further disruption to maritime trade. Moreover, with Israeli and Emirati bases across the Red Sea in Somaliland, Ethiopia’s partnerships with Israel and Somaliland, and Al-Shabaab’s opposition to Israel, this could widen the conflict to state and non-state actors in North Africa.
Several GCC countries such as Saudi Arabia and the UAE have had their oil pipeline projects and economic diversification projects such as Vision 2030 made possible by two-way investments with Western nations. As Saudi Arabia invest $1 trillion in the US economy and US firms increasingly rely on Saudi Arabia and UAE for rapid AI scaling, the conflict with Iran stands to threaten the global technology industry as major firms see their investments under threat from bombardment while Gulf states may need to review their overseas investments as they increasingly need to divert resources to military options.
Conclusion
The escalation between the US-Israel alliance and Iran demonstrates how conflict in the Persian Gulf can quickly generate global economic instability. Disruptions to the Strait of Hormuz, attacks on energy infrastructure, and halted LNG production have already increased volatility in oil, gas, and commodity markets. Although global oil reserves and alternative supply routes may soften short-term impacts, oil and LNG supply chains and maritime trade routes remain highly vulnerable. The effects extend far beyond the immediate belligerents, threatening Gulf economic diversification, increasing European energy insecurity, and exposing Asian economies reliant on Gulf imports. Ultimately, de-escalation will be critical to preventing further disruption to global energy markets.
Written by James Murphy
Middle East and North Africa Research Desk Analyst