Filenews 23 June 2025
U.S. involvement in the Israeli-Iranian war with strikes on Iran's three main nuclear facilities finds the global economy at a fragile moment, and developments now depend on how forcefully the Islamic Republic chooses to respond. The World Bank, the Organization for Economic Co-operation and Development and the International Monetary Fund have downgraded their forecasts for global growth in recent months. Under the current circumstances, it is taken for granted that any significant increases in oil or gas prices, or disruptions to trade caused by a further escalation of the conflict, would act as another brake on the global economy.
"Tensions in the Middle East amount to yet another negative shock to an already weak global economy," Ben May, director of global macroeconomic research at Oxford Economics, said before the attack. "We will see how Tehran responds, but the attack likely puts the conflict on an escalating path," analysts at Bloomberg Economics wrote. "For the global economy, an expanding conflict increases the risk of higher oil prices and an upward push in inflation."
Analysts believe that the biggest economic impact from a protracted conflict in the Middle East is likely to be felt through rising oil prices.
After the U.S. strike on Iran, a derivative that allows investors to speculate on crude oil price fluctuations rose 8.8% on IG Weekend Markets. If this bullish movement is sustained until markets open on Monday, IG strategic analyst Tony Sycamore said he expects WTI crude oil futures to open at around $80 a barrel.
Much will depend on short-term events. Iran has the right to defend itself after U.S. bombing of its nuclear facilities, Iranian diplomat Abbas Araghchi said, denouncing the U.S. strikes on three of the country's nuclear facilities as "outrageous" and stressing that they would have "endless consequences."
Three scenarios
Bloomberg Economics sees three options for Iran to respond: Attacking U.S. personnel and assets in the region, targeting regional energy infrastructure, closing the Strait of Hormuz using underwater mines, or harassing passing ships. In the extreme scenario in which the Strait of Hormuz closes, crude could exceed $130 a barrel, according to Daoud, Tom Orlik and Jennifer Welch, analysts at Bloomberg. This could push U.S. inflation close to 4% in the summer, prompting the U.S. Federal Reserve and other central banks to cancel the timeline of future interest rate cuts. In what is considered the most serious, global oil prices soar to around $130 a barrel, driving inflation in the US close to 6% by the end of this year. And, the U.S. may be a net exporter of oil. But higher crude prices would only have a negative impact on the challenges already facing the U.S. economy.
But China, as the largest buyer of Iranian oil, would also face the most obvious consequences of any disruption in the flow of oil, with its current reserves facing only temporary such a problem. Also, any disruptions to shipping through the Strait of Hormuz would have a significant impact on the global liquefied natural gas market. Qatar, which accounts for about 20 percent of global LNG trade, uses this route for exports and has no alternative transit. That would leave the global LNG market extremely tight, pushing European gas prices significantly higher, Bloomberg Economics noted.
