War with Iran hits the world economy
The United States and Israel’s attack on Iran triggered an energy crisis that raised oil prices, drove new inflationary pressures and led the IMF to revise its growth forecasts for the world economy. And this crisis threatens developing countries in particular.
The United States and Israel’s attack on Iran triggered an energy crisis that raised oil prices, drove new inflationary pressures and led the IMF to revise its growth forecasts for the world economy. And this crisis threatens developing countries in particular. Frank GonzálezThe war unleashed on 28th February caused a sharp fall in oil and gas supply due to the effects on infrastructure, as well as the Iranian closure of the Strait of Hormuz through which 20% of global production of both markets passes on its way through the Persian Gulf. In just a few days crude prices rose from between 70 and 80 dollars per barrel to over $100, at the same time as transportation costs also increased due to the upward trend in the costs of freight and insurance policies, among other factors. Saudi Arabia, Iraq, the United Arab Emirates, Iran, Kuwait and Qatar are the principal exporters of crude oil through the Strait of Hormuz while China, India, South Korea, Japan and other Asian and European nations are the biggest importers. Asia was the final destination of around 80% of crude oil and oil derivatives and 90% of the liquefied natural gas transported through that route in 2025, according to data from the International Energy Agency (IEA). An average of 14. 2 million barrels of crude oil every day passed through this maritime route during that period. 37. 7% of them went to China followed by India (14. 7%), other Asian countries (13. 9%), South Korea (12%), Japan (10. 9%), Europe (2. 8%), the United States (2. 5%) and other territories (4. 5%). The closure of the strait decreed by Tehran in response to the attack by the United States and Israel also obstructed the flow of fertilisers and other essential commodities for the food production industry like sulphur, helium and urea. Statistics published by the United Nations Conference on Trade and Development indicate that, in the week before the outbreak of hostilities, 38% of global trade in crude oil by sea passed through the Strait of Hormuz along with 29% of liquefied petroleum gas and 19% of liquefied natural gas. The movement of goods in the same period also included 19% of refined oil products, 13% of chemical products, including fertilisers, 3% of containers and 2% of dry bulk cargo. Economic impactA month after the bombings began, the International Monetary Fund (IMF) underlined the global repercussions as a consequence of the increase in commodity prices, inflation expectations and the likely erosion of confidence and aversion to risk in the financial markets. The IMF set out its forecasts for three scenarios, defined according to the duration, intensity and scope of the conflict, as well as the time that would be needed to return “the production and transport of energy” to normality. In the first scenario, envisaged for a war of short duration – already exceeded by events – the world economy’s growth would decrease from 3. 3% to 3. 1%, accompanied by a rise in inflation of 4. 1% in 2025 and 4. 4% this year. In the second scenario, which foresees a lengthier clash, GDP (Gross Domestic Product) growth would fall to 2. 5% with inflation rising to 5. 4%. Meanwhile, in the third scenario, with additional damage to infrastructure and a hypothetical extension of the disruption to the energy markets until 2027, growth would be around 2% and inflation would reach almost 6%. For its part, the United Nations Department of Economic and Social Affairs (UN DESA) points out that the war threatens the advances achieved in the development sphere and further slows progress towards the UN’s Agenda 2030 Sustainable Development Goals. At the same time, it stressed that the price increases could push another 45 million people into acute food insecurity. The impact of the crisis will be greater in emerging and developing nations, importers of energy and other commodities. The countries involved, directly or indirectly, in the conflict deserve a special mention: Iran is claiming at least 300,000 million dollars for the reconstruction of the country from the United States and its allies. In May, the consultancy Rystad Energy estimated the financial resources needed to restore oil infrastructure damaged in different countries at up to 58 billion dollars. Regarding the United States, the Secretary of War, Pete Hegseth, put the Pentagon’s outlay on the attack on Iran at $29 billion up to 12thMay. Strait of Hormuz. Photo Flickr. CreativeCommons License. After a ceasefire in place since 7thApril, the United States and Iran announced a memorandum of understanding on 14thJune which included the immediate and permanent cessation of hostilities and the reopening of the Strait of Hormuz within 30 days. According to the 14-point document published in the Iranian media, both sides have a period of 60 days for negotiations “to reach a final agreement” in order to resolve a conflict caused by the United States and Israel who, quite clearly, bit off more than they could chew. (Translated by Philip Walker – Email:[email protected])– Photos: Pixabay