There are economic shocks that arrive with warning, and there are the ones that arrive on a Sunday morning before markets open. The US-Israeli military strikes on Iran that began on 28 February 2026 were firmly in the second category. Within days, crude oil was trading above $100 a barrel for the first time in years. By mid-March, the Strait of Hormuz — through which roughly one-fifth of global oil and gas flows — had been effectively closed by Iranian fire targeting commercial shipping.
The economic consequences are compounding by the day. Understanding them requires distinguishing between what we already know, what is highly likely, and what remains genuinely uncertain.
What We Know: The Energy Picture
The Strait of Hormuz has never actually been fully closed in peacetime. It had always been a theoretical vulnerability. In March 2026, the theoretical became real. Atlantic Council experts note that the world cannot quickly replace a sudden loss of fifteen million barrels per day that had previously transited the strait. Oil is relatively fungible, but not at that scale and not on that timeline.
Qatar, which supplies approximately 20% of the world’s liquefied natural gas, suspended LNG production after an Iranian drone attack on 2 March. The disruption to global LNG markets has been immediate and severe, particularly for energy-importing economies in Europe and Asia. Roughly 84% of crude and 83% of LNG that transited the strait in 2024 was bound for Asian markets. Countries from South Korea to India to Japan are scrambling for alternative supplies at elevated prices.
Global air cargo capacity has fallen 18% due to airspace closures and flight rerouting. The civil aviation network — which carries high-value goods including semiconductors, pharmaceuticals, and mobile phones — is running at reduced capacity across routes between Europe and Asia. More than 12% of global air cargo passes through the Middle East under normal conditions.
What This Means for Inflation and Interest Rates
The economic modelling firms are in broad agreement on the inflation picture, though they differ on timing and magnitude. Capital Economics forecasts that if the conflict persists for approximately three months, Brent crude could average around $150 per barrel over that period. The IMF’s managing director Kristalina Georgieva has warned that a prolonged conflict poses an inflationary risk to the global economy. Eurozone inflation is now forecast to peak above 4% year-on-year.
The implication for interest rates is significant. Central banks in Europe and the UK had been expected to cut rates in the first half of 2026. Those expectations are now being rapidly revised. The Bank of England, facing oil and gas prices feeding directly into UK inflation, is increasingly expected to hold. Some market participants have begun pricing a small probability of a hike. This is the opposite of where rate expectations stood just a few weeks ago.
For businesses with variable-rate debt or borrowing plans for 2026, this matters enormously. A rate environment that looked like easing has become one of uncertainty or potential tightening. As we noted in our analysis of how strategy processes often fail to account for genuine uncertainty, this is precisely the kind of tail risk that gets smoothed over in annual planning cycles and is now arriving with full force.
Sectors Most Exposed
The exposure is uneven, and businesses need to know where they sit. Airlines face a dual hit: elevated jet fuel costs and significant revenue disruption from Middle East route cancellations. Qantas, IndiGo, Air India, and SAS have all announced fare increases. For manufacturers with complex supply chains that rely on air freight for just-in-time components — particularly in electronics and automotive — the 18% reduction in air cargo capacity creates real operational risk.
Shipping and logistics businesses face war-risk surcharges that have risen sharply, with insurance costs for vessels operating near the Strait of Hormuz increasing dramatically. Some shipping companies have suspended Middle East routes entirely. Fertiliser production — which depends on natural gas as a feedstock — is facing supply disruptions that, if prolonged, will feed into global food prices. Yara International’s chief executive has already warned global leaders to consider the impact on food security in developing countries.
Meanwhile, some sectors benefit. North American oil producers, Russian energy exporters (Russian stocks have trended upward as Russia is well-positioned as an alternative hydrocarbon supplier), and defence contractors are all seeing significant gains. The K-shaped dynamic that has characterised many economic disruptions is operating here too.
How Long Could This Last?
Capital Economics offers two scenarios. In the short-war scenario — conflict resolved within weeks, Iranian attacks on Hormuz cease — Brent crude falls back sharply, potentially reaching $65 per barrel by year-end. In the prolonged scenario, oil rises further to around $130 per barrel in Q2 before gradually declining. Both scenarios assume some normalisation; neither assumes a rapid return to pre-war conditions.
The political dimension is important here. Trump has said he expects oil prices to “drop like a rock” once the war ends. He has also said Iran is “eager to negotiate but not yet prepared to reach a deal.” Both things can be true simultaneously. What neither statement addresses is the physical reality that energy infrastructure takes time to restore, shipping confidence takes longer, and the insurance markets that underpin global trade move on their own timeline — not the White House’s.
What Businesses Should Do Now
The honest answer is that scenario planning — which most businesses do in a nominal way — needs to be taken seriously. This means modelling energy cost scenarios at $100, $130, and $150 per barrel across your P&L. It means reviewing your supply chain for air freight dependencies and identifying alternative routing options. It means stress-testing your debt covenants against a rate environment where cuts are delayed or reversed.
It also means communicating clearly with customers and suppliers about potential price and delivery impacts. The businesses that come through the next quarter with their relationships intact will be the ones that were honest early rather than those that hoped the disruption would resolve itself quickly.
Frequently Asked Questions
Why has oil gone above $100 in 2026?
The US-Israeli military campaign against Iran beginning 28 February 2026 has effectively closed the Strait of Hormuz, through which roughly one-fifth of global oil and gas normally flows. The supply disruption, combined with geopolitical uncertainty, has driven Brent crude above $100 per barrel.
How does the Iran war affect inflation?
Higher energy costs feed directly into inflation through fuel prices, freight costs, and as a production input across manufacturing. Eurozone inflation is now forecast to peak above 4% year-on-year, and rate-cut expectations have been significantly revised downward across major economies.
Which businesses are most affected by the Strait of Hormuz closure?
Airlines, shipping companies, manufacturers reliant on air freight, energy importers, and businesses with exposure to Middle East supply chains face the greatest direct exposure. North American oil producers, Russian energy exporters, and defence contractors are among the beneficiaries.
