WASHINGTON — U.S. and Israeli attacks on Iran have triggered a sharp rise in energy prices, shaken global stock markets, and created serious new worries for the world economy. As the conflict continues with strikes and counterstrikes, the damage to key energy facilities in the Persian Gulf threatens to prolong economic hardship for months or even years.
A week or two ago, many experts believed that if the fighting stopped quickly, the long-term economic effects would be limited. But now, with critical infrastructure being destroyed, the outlook has grown much darker.
Christopher Knittel, an energy economist at the Massachusetts Institute of Technology, said the destruction of energy facilities means the war’s economic consequences could last a long time.
One major blow came when Iran struck Qatar’s Ras Laffan natural gas terminal on March 18. The facility produces about 20% of the world’s liquefied natural gas (LNG). The attack wiped out 17% of Qatar’s export capacity, and repairs could take up to five years, according to state-owned QatarEnergy.
The war also triggered an immediate oil shock. In response to the initial attacks, Iran effectively closed off the Strait of Hormuz — a narrow waterway that carries about one-fifth of the world’s oil supply — by threatening tankers passing through it. Gulf oil producers such as Kuwait and Iraq were forced to cut production because they had no way to ship their oil. The result was a loss of roughly 20 million barrels of oil per day, which the International Energy Agency called the largest supply disruption in the history of the global oil market.
Oil prices have surged as a result. On Friday, Brent crude rose 3.4% to settle at $105.32 per barrel, up from about $70 before the war began. U.S. benchmark crude climbed 5.5% to $99.64 per barrel.
“Historically, oil price shocks like this have led to global recessions,” Knittel warned.
The conflict has also revived fears of stagflation — a painful mix of high inflation and slow economic growth last seen during the oil shocks of the 1970s. Carmen Reinhart, a former World Bank chief economist now at Harvard Kennedy School, noted that the war is raising the risk of both higher inflation and weaker growth at the same time.
Gita Gopinath, a former chief economist at the International Monetary Fund, recently estimated that global economic growth, which was expected to reach 3.3% this year before the war, could be 0.3 to 0.4 percentage points lower if oil prices average $85 per barrel throughout 2026.
Fertilizer shortages and rising food prices
The Persian Gulf region is a major exporter of fertilizers, supplying about one-third of the world’s urea and one-quarter of its ammonia. These fertilizers depend on cheap natural gas, which is now harder to obtain because of the blocked Strait of Hormuz. Up to 40% of global nitrogen fertilizer exports normally pass through the strait.
Since the war started, urea prices have jumped 50% and ammonia prices have risen 20%. Countries like Brazil, which imports 85% of its fertilizer, are especially vulnerable. Egypt, another major fertilizer producer, is struggling because it lacks enough natural gas to keep production running.
Higher fertilizer costs are expected to lead to lower crop yields and more expensive food, hitting the poorest families in developing countries the hardest.
The war has also disrupted supplies of helium, a natural gas byproduct used in making computer chips, rockets, and medical imaging equipment. Qatar’s damaged Ras Laffan facility supplied about one-third of the world’s helium.
Energy rationing around the world
“No country will be immune to the effects of this crisis if it continues to go in this direction,” said Fatih Birol, head of the International Energy Agency, on March 23.
Developing countries are suffering the most because they are often outbid for scarce oil and natural gas. Asia is particularly exposed, as more than 80% of the oil and LNG that travels through the Strait of Hormuz is headed there.
In the Philippines, government offices now operate only four days a week, and air conditioning is limited to no cooler than 75°F (24°C). In Thailand, public workers have been told to use stairs instead of elevators. India, the world’s second-largest importer of liquefied petroleum gas (LPG) used for cooking, is prioritizing households over businesses and absorbing most of the price increases to protect poor families. Still, some restaurants have had to shorten hours or remove energy-intensive dishes from their menus.
South Korea has restricted government employees from using cars for work and has brought back fuel price caps that were dropped decades ago.
Impact on the United States
The United States is somewhat protected from the worst effects. As a major oil exporter, American energy companies are benefiting from higher prices. Domestic natural gas prices have also remained relatively stable because U.S. LNG export facilities are already running at full capacity and cannot ship more abroad.
Even so, higher gasoline prices are hurting American consumers. The average price of a gallon of gas has climbed to nearly $4, up from $2.98 a month ago, according to AAA. Economists at Moody’s Analytics warned that nothing weighs more heavily on consumers’ minds than paying more at the pump.
The U.S. economy was already showing signs of weakness before the war. It grew at an annual rate of just 0.7% in the final three months of last year, down sharply from 4.4% earlier. Job growth has slowed dramatically, with employers cutting 92,000 jobs in February and adding very few positions throughout 2025.
Gregory Daco, chief economist at EY-Parthenon, has raised the chance of a U.S. recession over the next year to 40%, compared with a normal risk of about 15%.
A slow path to recovery
The global economy has shown resilience through the pandemic, Russia’s invasion of Ukraine, and earlier rounds of inflation and high interest rates. At first, there was hope it could absorb the shock of the Iran war as well. But as damage to energy infrastructure continues, that optimism is fading.
Experts warn that repairing LNG facilities in Qatar, refineries in places like Kuwait, and damaged tankers will take years. Even under the best conditions, the recovery process will be slow.
“There is no economic upside to the conflict with Iran,” wrote Mark Zandi and his colleagues at Moody’s Analytics. “At this point, the questions are how much longer the hostilities will continue and how much economic damage they will cause.”
