US strikes on Iran come at fragile moment for the global economy
US strikes on Iran
's three main nuclear facilities come at a fragile moment for the
global economy
, and the outlook now hinges on how forcefully the Islamic Republic retaliates.
The
World Bank
, the Organization for Economic Cooperation and Development and the
International Monetary Fund
have all downgraded their global growth forecasts in recent months. Any significant increases in oil or natural gas prices, or disturbances in trade caused by a further escalation of the conflict, would act as yet another brake on the world economy.
'We'll see how Tehran responds, but the attack likely puts the conflict on a escalatory path,' Bloomberg Economics analysts including Ziad Daoud wrote in a report. 'For the global economy, an expanding conflict adds to the risk of higher
oil prices
and an upward impulse to inflation.?'
The rising
geopolitical risks
intersect with a potential escalation in tariffs in the coming weeks as President Donald Trump's pauses of his hefty so-called 'reciprocal' levies are due to expire. The biggest economic impact from a prolonged conflict in the Middle East would likely be felt via surging oil prices.
Post the US strike, a derivative product that allows investors to speculate on price swings in crude oil surged 8.8% on IG Weekend Markets. If that move were to hold when trading resumes, IG strategist Tony Sycamore said he projects WTI crude oil futures will open at around $80 per barrel.
Live Events
Much will hinge on near-term events. Iran's Foreign Minister Abbas Araghchi said the US attacks are 'outrageous and will have everlasting consequences.' He cited the United Nations Charter on provisions for self-defense and said Iran reserves all options to defend its sovereignty, interest and people.
Bloomberg Economics sees three options for Iran to respond:
Attacks on US personnel and assets in the region
Targeting regional energy infrastructure
Close the
Strait of Hormuz
maritime chokepoint using underwater mines or harassing ships passing through
In the extreme scenario in which the Strait of Hormuz is shut, crude could soar past $130 per barrel, according to Daoud, Tom Orlik and Jennifer Welch. That could take US CPI near 4% in the summer, prompting the US Federal Reserve and other central banks to push back the timing of future rate cuts.
About a fifth of the world's daily oil supply goes through the Strait of Hormuz, which lies between Iran and its Gulf Arab neighbors such as Saudi Arabia.
The US is a net exporter of oil. But higher crude prices would only add to the challenges the US economy is already facing. The Fed updated economic projections last week, marking down its forecast for US growth this year to 1.4% from 1.7% as policymakers digested the impact on prices and growth of Trump's tariffs.
As the largest buyer of Iranian oil exports, China would face the most obvious consequences from any disruption to the flow of petroleum, though its current stockpiles may offer some respite.
Any disruptions to shipping through the Strait of Hormuz would have a significant impact on the global liquefied natural gas market too.
Qatar, which makes up around 20% of the global LNG trade, uses this route for exports and has no alternative passage. That would leave the global LNG market extremely tight, pushing European gas prices significantly higher, Bloomberg Economics has noted.
While investors may be concerned that supplies could be interrupted if hostilities escalate, OPEC+ members, including de facto group leader Saudi Arabia, still have abundant spare capacity that could be activated. In addition, the International Energy Agency may choose to coordinate the release of emergency stockpiles to try and calm prices.
'The Middle East tensions represent another adverse shock to an already weak global economy,' Ben May, director of global macro research at Oxford Economics, said in a report ahead of the latest escalation. 'Higher oil prices and the associated rise in CPI inflation would provide central banks with a major headache.'
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Time of India
23 minutes ago
- Time of India
Hormuz blockade will hurt global energy supply: Experts
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Hindustan Times
27 minutes ago
- Hindustan Times
US warns Iran against closing Strait of Hormuz: 'It's economic suicide'
US Secretary of State Marco Rubio on Sunday reacted to reports claiming that the Iranian parliament has approved a measure to close the Strait of Hormuz, saying that it would be an 'economic suicide'. US Secretary of State Marco Rubio at the State Department in Washington, DC on June 20, 2025. (AFP) Speaking at Fox News' "Sunday Morning Futures with Maria Bartiromo" show, Rubia called on China to encourage Iran not to shut down the Strait of Hormuz after Washington carried out strikes on Iranian nuclear sites. Follow LIVE updates here. The Strait of Hormuz is situated between Iran and its Arabian Gulf neighbours. According to Bloomberg, this route enables the daily transportation of roughly one-fifth of global oil supplies. "I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil," Rubio was quoted as saying on the show by Reuters. Also Read | How US military's decoy B-2 Bomber mission helped it achieve stealth before Iran strikes "If they do that, it will be another terrible mistake. It's economic suicide for them if they do it. And we retain options to deal with that, but other countries should be looking at that as well. It would hurt other countries' economies a lot worse than ours." The secretary of state additionally cautioned that closing the strait would represent a significant escalation, warranting a response from the US and others. Iran's closure of Strait of Hormuz After the US airstrikes on its nuclear installations, Iran is considering closing the Strait of Hormuz, EuroNews reported on Sunday. Also Read | 'Large volume of our supplies don't come through Hormuz': Hardeep Puri assures fuel stability amid Middle East tensions In an interview with local media, Revolutionary Guard commander Sardar Esmail Kowsari stated that closing the Strait of Hormuz "is under consideration, and Iran will make the best decision with determination," according to EuroNews. "Our hands are wide open when it comes to punishing the enemy, and the military response was only part of our overall response," added Kowsari, who is a member of the Iranian parliament in addition to his military position.
Hindustan Times
33 minutes ago
- Hindustan Times
Russia demands answers, fumes at US' operation against Iran's nuclear facilities
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