The Iran Conflict And The Effect On The Global Economy: The conflict in Iran is set to officially end on Friday if both parties sign the Memorandum of Understanding (MoU) in Geneva. And… if the peace can be kept.
While the conflict primarily involved the United States, Israel, Iran, and Lebanon, the other Gulf countries were all affected to some degree. However, the war greatly affected the rest of the world, specifically the global economy.
U.S. Air Force Airman 1st Class Brendan Price, 908th Expeditionary Air Refueling in-flight refueling specialist, delivers fuel to an Israeli Air Force F-16 during exercise Juniper Oak 23.3 above the U.S. Central Command area of responsibility, July 11, 2023. The U.S. is committed to its partnership with Israel while developing and maintaining interoperability with its partners, and ensuring regional security by providing essential training to deter adversaries from taking aggressive actions or malign activities against the U.S., coalition and partners. (U.S. Air Force photo by Senior Airman Jacob Cabanero)
The effect the war had on the economy was vast, and some say those effects may take years to rectify.
Energy costs surged following the closure of the Strait of Hormuz, as oil and gas prices drove a sharp increase in inflation and raised the cost of everyday goods and services.
Overall, emerging markets were adversely affected by the war, while the value of the US dollar rose in the war’s first days. However, the prolonged conflict risked a global recession, with higher energy costs eroding consumer spending and industrial competitiveness.
The Global Energy Order Is Now Forever Changed
Patricia Cohen’s piece in the New York Times made the point that the entire playing field for energy producers and consumers has changed. With the shutdown in the Strait, oil producers from other Gulf states, the US, and other oil-producing nations all began jockeying for position.
The global energy order has dramatically shifted, moving from a Middle East-dominated oil market to one centered on Western Hemisphere energy dominance, driven by US LNG and the fallout of the Iran conflict.
Geopolitics, AI-driven electricity demand, and shifting fossil fuel and climate strategies are permanently rewriting the rules of the market.
In the near future, the oil business is shifting from Hormuz to Houston. The US has overtaken the Middle East as the key source of global supply. The ongoing closure of the Strait of Hormuz disrupted 20 percent of global petroleum supplies, shifting power to the Americas.
Countries like Brazil, Argentina, Canada, and Venezuela are rapidly expanding their production to meet international demand. And nations in Asia that are vulnerable due to their energy independence or lack of it are acting on the events to preclude this from happening again.
Japan And South Korea Agree To Cooperate on Energy Needs
Japan and South Korea are deepening bilateral energy cooperation, including mutual supply swaps and shared strategic stockpiles.
Heavily dependent on energy imports and highly vulnerable to disruptions in the Middle East, both nations are actively securing their energy grids. They are both searching for new markets for crude oil, petroleum products, and liquefied natural gas (LNG).
Japan and South Korea rely on imports for over 80 percent of their total energy consumption, with approximately 90 percent of their crude oil originating from the Middle East. Japan remains one of the world’s largest importers of coal and LNG.
To bypass the Strait of Hormuz, Japan has successfully secured substitute crude oil supplies to replace its reliance on Middle Eastern oil. Faced with the de facto blockade of the Strait of Hormuz, the nation has pivoted its procurement to the United States, Latin America, and its existing stakes in Russia’s Sakhalin-2.
Key Changes In OPEC
Cohen’s article highlights the changes in the Organization of the Petroleum Exporting Countries (OPEC).
She wrote, “Relations among producers are also changing. The war heightened tensions between the United Arab Emirates and Saudi Arabia and prompted the Emirates to leave the OPEC Plus oil cartel. The impact of that departure will be fully felt only when oil production in the region picks up. But a weakened Organization of the Petroleum Exporting Countries could add to volatility in oil markets.”
Effective May 1, 2026, the UAE officially withdrew from OPEC to pursue an independent energy policy. Frustrated by long-standing production limits, Abu Dhabi aims to significantly ramp up production free from cartel quotas.
“The UAE is preparing for a world after the Iran war where oil demand is in decline, and OPEC’s power to maintain control and discipline will be weaker,” energy strategist Kingsmill Bond said, referring to the UAE’s strategy of maximizing its oil production to sell as much of its oil as possible before energy markets move beyond fossil fuels.
While the US temporarily lifted sanctions on Russian oil, Moscow has not truly reaped any benefits from it, as Ukrainian drone attacks have disrupted more than 30 percent of Russian energy production.
Inflation Is On The Rise
Global inflation is rising primarily due to surging energy and transportation costs driven by the conflict in the Middle East, supply chain bottlenecks in the technology sector, and strong global economic demand.
Together, these pressures are increasing input costs for businesses worldwide, which are then passed on to consumers.
In the United States, inflation rose for the third month in a row, hitting an annual rate of 4.2 percent in May. And instead of planning for the next drop in interest rates, Wall Street expects the Federal Reserve to raise rates at least once this year.
According to Franklin Templeton, inflation in the United States appears structurally closer to 3 percent than 2 percent, while higher energy costs and disrupted supply chains risk broadening price pressures across the economy. Consumers continue to spend, but discretionary demand has lessened.
According to international manufacturing surveys, global costs have risen at their steepest pace in over three years, signaling that consumer prices will likely remain elevated for at least the next several months.
The European Central Bank raised rates to 2.25 percent. “The war in the Middle East is generating inflation pressures,” the bank said.
While the conflict in Iran appears to be over…for now, the global economy will take time to recover, and it may take longer than some anticipate.
About the Author: Steve Balestrieri
Steve Balestrieri is a National Security Columnist. He served as a US Army Special Forces NCO and Warrant Officer. In addition to writing on defense, he covers the NFL for PatsFans.com and is a member of the Pro Football Writers of America (PFWA). His work was regularly featured in many military publications.
