Trump’s war in Iran threatens to cause an economic shock – but which countries will be worst hit?
Donald Trump has claimed that the economic impact of his war in Iran is “a very small price to pay” for ousting the country’s regime and stopping its nuclear programme.
But his assessment might not be shared by the dozens of countries grappling with a surge in energy prices due to the blockade of the Strait of Hormuz.
In the past fortnight, Sri Lanka has introduced a four-day working week, while the International Energy Agency (IEA) has suggested people around the world should work from home to conserve energy due to the squeeze on fuel created by the conflict.
A trickle of oil is leaving the Middle East while the Strait of Hormuz remains under Iranian control, with a reduced number of boats transiting through since the end of February. The pressure was compounded after Tehran targeted numerous oil production facilities in Gulf countries in retaliation for Israel’s strikes on its vital South Pars gas field.
With no end to the Iran war in sight, experts are already warning of a new cost-of-living crisis. In the UK, bills could increase by as much as £300 from the summer – taking the country back to the inflationary aftershock caused by the war in Ukraine.
“Really, what traders are looking for is some sort of indication of an end to the conflict, and we are not seeing that,” explains Dr Adi Imsirovic, a lecturer in energy systems at the University of Oxford. “I don’t think the US realised that the actual price of oil going to the refineries, and what will go to the end users, is actually a lot more expensive than what the markets are indicating.”
The cost of Brent Crude, considered to be the global oil benchmark, has soared more than 60 per cent since the war started. When the market closed on the evening of 27 February, it was priced around $71. On Wednesday, prices briefly peaked at $119 a barrel, the highest figure since the first few months of the war in Ukraine.
Asia is particularly dependent on the Strait of Hormuz. It accounts for roughly 80–84 per cent of global crude oil flows and over 80 per cent of Liquefied Natural Gas (LNG) transit through the strait, according to Dr Umud Shokri, energy strategist and senior visiting fellow at George Mason University.
But not all nations are expected to struggle, he says.
“The extent to which countries are going to be impacted depends on two main things: the proportion of oil they buy from the Middle East and what other reserves they have.”
China is the largest importer, with virtually all the Iranian oil prior to the conflict going there. Even now, tankers holding the sanctioned resource are exiting the strait for China.
“Over time, China worked very hard on their supply, so they’re one of the biggest buyers of South American oil. They’re a huge buyer of Russian oil. They buy a lot of West African oil,” says Dr Imsirovic. “With their financial muscle, they managed to also build huge stockpiles of reserves as well.”
Countries like Japan and South Korea are “hugely exposed”, he says, but due to their “fairly large reserves” they will not face the same shock that some countries in South Asia will receive.
Here are the countries expected to fare the worst from the Middle East oil crisis:
