As deadly exchanges between Israel and Iran stretch into a second week, fears are mounting that the fighting could spread across the Middle East — a region critical to the world’s oil and gas flows. The latest round of hostilities began when Israel struck targets deep inside Iran, reportedly killing senior military figures and damaging nuclear facilities. In retaliation, Iran launched waves of missiles and drones at Israeli cities, some of which breached Israel’s air defences, killing dozens.
The United States has issued fresh warnings to Tehran, with President Trump stating any further escalation would provoke a “massive response.” Meanwhile, countries across Europe and Asia are bracing for economic fallout if the crisis expands.
Oil prices have already surged on supply fears. Brent crude climbed to over $75 a barrel, up nearly 8 percent since Israel’s initial strikes. Some analysts say prices could shoot past $100 if the conflict disrupts oil shipping routes. Much of the world’s oil supply — about a third of seaborne crude — moves through the Strait of Hormuz, a narrow chokepoint separating Iran from the Gulf states. Any move by Tehran to close or threaten this waterway would choke off vital supplies, sending shockwaves through global energy markets.
However, a full blockade would also cut Iran’s own oil revenues, especially from its biggest buyer, China. Experts believe Iran would only risk this if pushed to the brink. “Closing Hormuz is Tehran’s nuclear option — and it would hurt them too,” said Leila Saidi, an energy analyst based in Dubai. An oil shock would ripple across the global economy. Higher fuel costs drive up transport and manufacturing expenses, feeding into the price of everyday goods from food to clothing.
Central banks in Europe, North America, and Asia have only recently begun cutting interest rates to stimulate growth after a prolonged fight against high inflation. A sudden spike in oil prices could reverse that progress, forcing policymakers to either pause or rethink planned rate cuts. Global stock markets have been jittery. The S&P 500 dropped more than 1 percent after the initial strikes, while key Middle Eastern indices fell sharply before partially recovering.
Defence stocks and energy companies, however, have rallied. Shares of US arms makers and oil giants like ExxonMobil and Shell have ticked upward as investors bet on rising demand for weapons and energy. Gold, the traditional safe haven, also rose close to its record high as traders looked to hedge against geopolitical risk.
Airlines across the region have cancelled or rerouted flights. Emirates and Etihad have suspended routes to Iraq, Iran, and parts of Israel, while Qatar Airways has pulled flights to Syria and Iraq. Several countries, including Jordan and Iraq, have closed parts of their airspace, disrupting some of the world’s busiest flight corridors between Asia and Europe.
Travel experts expect short-term pain for the region’s tourism sector, but say it could recover quickly if tensions ease. Analysts stress that while markets have partially stabilised for now, much depends on whether Israel and Iran pull back from the brink — or escalate further. “If this turns into a regional war involving Gulf oil fields or shipping lanes, the economic impact could be far worse than what we’re seeing now,” Saidi warned. For now, investors and policymakers alike are watching nervously — and hoping the next strike doesn’t send oil above $100 and inflation soaring again.
