How the Iran Crisis Might Spark Broader Economic Turmoil

Rising Tensions in the Strait of Hormuz Threaten Global Oil Flows

Recent cellphone videos have captured dramatic scenes of blazing fires and dense black smoke pouring from a vessel in the Strait of Hormuz, highlighting growing concerns about potential interruptions to worldwide oil shipments as the United States and Israel face off with Iran.

This narrow waterway is a critical artery for transporting oil and liquefied natural gas. The Skylight, a 7,600-ton tanker carrying oil and chemicals, was situated just north of Khassab, Oman, at the strait’s tightest point—where the shipping channel narrows to only three kilometers.

On March 1, the Skylight was reportedly one of three civilian vessels struck in the area, while U.S. Central Command confirmed it had targeted an Iranian Navy corvette nearby.

According to Reuters, which analyzed MarineTraffic data, at least 150 ships—including numerous oil and gas tankers—had anchored in the region as uncertainty mounted. With maritime activity slowing dramatically, conflicting reports emerged regarding whether Iran had officially closed the strait.

Shipping Uncertainty and Market Jitters

Amena Bakr, head of Middle East and OPEC+ research at Kpler, explained during a March 1 webinar, "The strait remains open, but many international oil companies are advising against passage due to soaring insurance premiums." She added, "Insurance costs are so prohibitive that ships are unwilling to risk the journey. If headlines announce a full closure and a halt to crude shipments, that’s when real panic will set in."

Although the strait has not been officially closed, Brent crude prices surged by up to 10% on March 1, and many experts anticipate further increases.

Ajay Parmar, director of energy and refining at ICIS, told Reuters, "We expect oil prices to approach $100 per barrel after the weekend, and possibly surpass that if the disruption persists."

Bakr offered a more cautious perspective but noted that the current conflict’s impact on oil prices could be far greater than the 12-day standoff with Iran in June 2025. "Back then, oil prices spiked to $80 before dropping again. That conflict was more predictable, with advance warnings and orchestrated moves. This time, there are no such alerts, putting us in uncharted territory. I anticipate prices will settle between $85 and $90 per barrel," she said, speaking from Dubai, which she described as reeling from unprecedented Iranian attacks.

The Role of OPEC+ and Russia

Elevated oil prices could trigger broader economic fallout, fueling inflation and political tensions around the world.

The conflict with Iran could push prices higher in several ways. Despite heavy sanctions, Iran continues to export significant volumes of oil to China. Should a prolonged conflict disrupt these flows, China would be forced to seek alternative suppliers.

Additionally, reports suggest that the threat of Iranian drone or missile strikes has prompted oil fields in Iraq to temporarily halt production as a precaution.

A closure of the Strait of Hormuz would also affect oil exports from Kuwait and other Persian Gulf nations. While pipelines across Saudi Arabia offer alternative routes, their capacity is limited.

OPEC+, which includes Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria, and Oman, has pledged to closely monitor the situation and maintain a cautious approach to production levels to help manage price volatility.

Although their official statement did not mention the Iran conflict, Russia’s Foreign Ministry warned that a halt in Hormuz shipping could "create a significant imbalance in global oil and gas markets."

Such an imbalance could actually benefit Russia. With global oil prices suppressed and sanctions on Russian oil—including a G7 price cap—Russian oil revenues have fallen sharply. The Center for Research on Energy and Clean Air (CREA) reported in February that Russia’s crude export earnings dropped 18% over the past year.

China, one of Russia’s main customers, could increase its purchases if supplies from Iran or other Gulf states are disrupted.

By RFE/RL

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