U.S. strikes on Iran come at fragile moment for the global economy

U.S. 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 U.S. 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.
Israeli Prime Minister Benjamin Netanyahu speaks as President Donald Trump looks on as they meet in the Oval Office of the White House in Washington on April 7. |
Eric Lee / The New York Times
Much will hinge on near-term events. Iran's Foreign Minister Abbas Araghchi said the U.S. 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.
Analysts see three options for Iran to respond:
Attacks on U.S. personnel and assets in the region
Targeting regional energy infrastructure
Closing 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 U.S. CPI near 4% in the summer, prompting the U.S. 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 U.S. is a net exporter of oil. But higher crude prices would only add to the challenges the U.S. economy is already facing. The Fed updated economic projections last week, marking down its forecast for U.S. 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.
People attend a protest following U.S. attacks on Iranian nuclear sites, amid the Iran-Israel conflict, in Tehran on Sunday. |
Arash Khamooshi / The New York Times
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.
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.'

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

NHK

an hour ago

• NHK

North Korea condemns US attacks on nuclear sites in Iran

North Korea's foreign ministry has castigated the United States for its recent military strikes on nuclear sites in Iran. A foreign ministry spokesperson denounced the attack through state-run media on Monday, saying it "violently trampled down the territorial integrity and security interests of a sovereign state." The spokesperson also called on the international community to "raise the voice of unanimous censure and rejection" against US and Israeli acts in the Middle East. The official said those acts are amplifying serious concerns by further aggravating the tension in the region and causing serious negative consequences to the global security structure through the use of physical strength under the pretext of "peacekeeping" and "threat removal." North Korea and Iran have maintained friendly ties and share an anti-US stance.

Japan Times

2 hours ago

• Japan Times

Israel keeps up Iran attacks with debate raging on when to stop

Israeli warplanes kept up their attacks on Iranian missiles systems, airfields and the Fordo nuclear site following U.S. strikes at the weekend, as debate raged in the country over how long the campaign should continue. "Israel is striking regime targets with unprecedented force,' Defense Minister Israel Katz said in a statement Monday, including the internal security headquarters and the infamous Evin Prison for political prisoners. At a news conference on Sunday night, Prime Minister Benjamin Netanyahu declined to be specific on a timeline for ending the war, saying: "Once we achieve the goals, we will not continue beyond what is necessary. But we won't end it prematurely either.' Before the U.S. joined the battle, Netanyahu declared three goals: eliminate Iran's nuclear program, end its ballistic missile capability and prevent it from sponsoring anti-Israeli militias such as Palestinian group Hamas, Lebanon-based Hezbollah and Yemen's Houthis. For some commentators, those sound like open-ended goals that won't lead to a swift end to a war costing Israel tens of billions of dollars in weapons systems and lost productivity and driving residents daily into bomb shelters. "We need to say to the American president, 'Thank you. We'll never forget what you did for us,'' wrote Nahum Barnea, a columnist for the centrist Yedioth Ahronoth newspaper. But Donald Trump now needs to "impose a ceasefire on Iran and us. Not in another two weeks, and not in another month, but now.' Israel's home command says that in the past week and a half, hundreds of Iranian ballistic missiles have driven some 10,000 Israelis from their damaged homes. That is reason enough to find an off-ramp and declare victory, Barnea and others say, along with concerns of further Iranian retaliation and the prospect of a perpetual war of attrition. But Caroline Glick, a top adviser to Netanyahu, said Iran's ability to counterattack is precisely the reason Israel won't be hurried. "They keep attacking Israel, and we need to eliminate their ability to do that,' she said by phone. "No one is standing with a stopwatch saying end it. We have our objectives and we are achieving them. The public gets it. It's not rushing us.' The fear is that Iran will continue to do what it did Monday — launch highly destructive ballistic missiles, forcing everyone into safe rooms and damaging infrastructure such as electrical facilities. The debate is whether Iran's capacity can be ended militarily or whether it would be better to allow diplomacy to take over. Some TV panel experts argue that Israel should seek a mutual pause in hostilities after all its military targets in Iran have been hit. This is possible, they note, in part due to the damage Israel has inflicted on Iran's regional proxies over the past year, particularly Hezbollah and Hamas, both designated terrorist organizations by the U.S. and many other governments. "This is the time to end the war in Iran, to end the war in Gaza, and to turn inside Israel,' Ehud Olmert, a former Israeli prime minister and critic of Netanyahu, told Bloomberg TV on Monday. It's necessary "to recuperate and to build up again that which was broken in the hearts and minds and spirits of the Israeli people after two years of fighting with Hamas and with the Iranians,' he added. Others closer to the center of power — including Netanyahu — have floated the idea that Israel's war on Iran could result in regime change, without stating that that's the goal. Many in the region fear what a power vacuum in the country of 90 million people could mean, given the extremism and sectarian violence that followed the Iraq War and the Arab Spring. "We very much hope that we will succeed in heading up a process that will ultimately lead to Iran continuing to be isolated,' Finance Minister Bezalel Smotrich said in a radio interview. "As a result of this, it can certainly happen that the regime will be destabilized to the point of collapse.' But, ultimately, many analysts say, the direction of the war is in the hands of Iran's leader Ayatollah Ali Khamenei. He's yet to indicate how the Islamic Republic will respond to the U.S. or plans for about 400 kilograms of highly enriched uranium that could be turned into bombs and thought to still be in Iranian hands. On Monday, Iran said the U.S. should await "severe consequences.' Ehud Yaari, a veteran Israeli commentator on the region, said on Channel 12 that Khamenei can use the uranium as a card at the negotiating table but, ultimately, he's got the weaker hand. "Khamenei must decide whether to try to resume holding negotiations in the hope that Trump will back down from his demand for total surrender,' he said. Or "to persist in fighting, to suffer more and more, and to reach the moment at which he will agree to hold negotiations under worse conditions.'

NHK

2 hours ago

• NHK

June 23 NEWSROOM TOKYO Bangkok Live

Lineup: 1. Pakistan, Taliban condemn US strikes on Iran 2. Thai PM claims coalition support after gaffe 3. Global stretch for peace and wellness