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Iran's retaliatory strikes on American and British oil tankers and, most dramatically, on oil storage facilities in the United Arab Emirates, have pushed an already fragile global energy market to breaking point. The Strait of Hormuz remains effectively blocked. Oil and fertiliser prices are surging. Fuel costs in Britain have doubled. And the reverberations are only just beginning, with people fleeing the UAE and Qatar as fast as they can.
The immediate consequences are stark enough: 800-plus Iranians are dead and a growing number of Americans, Kuwaitis, Lebanese, Israelies and others. Even if hostilities were to cease tomorrow - purely hypothetical scenario - the damage to freight rates and insurance premiums would persist for months, if not years. Ships and their cargoes are insured separately, and underwriters have no appetite for risk in what has become the most volatile chokepoint in global trade. Every barrel transiting the Persian Gulf now carries a hefty geopolitical surcharge, and that cost will be passed directly to consumers at a record-breaking speed. Probably the fastest increase since the 2020 Coronavirus (COVID-19) spike.
The latest numbers speak for themselves. Roughly 20% of the world's natural gas and up to 30% of its oil passes through the narrow mouth of the Hormuz Strait, connecting the Persian Gulf to the Gulf of Oman and on to the Indian Ocean. Of the cargo that reaches the Indian Ocean, some 80% is bound for South-East Asia - principally China, India, Japan and South Korea. Only 15-20% heads to Western Europe and elsewhere, but don't let that calm readers in London into thinking that risk price is spreading far and wide.
This matters enormously. China absorbs between 30% and 40% of that 80% share. India takes a substantial portion of the remainder. These are the two great locomotives of global economic growth, and both now face a sharp and unavoidable increase in the cost of energy. Beijing may have stockpiled strategic reserves and developed alternative supply routes - including the Power of Siberia pipeline and shipments via Vladivostok - but restructuring supply chains is a process, not an event. In the near term, the hit is real.
The likely outcome is not collapse but deceleration. China's growth rate could slip from 5% to 4%, still impressive by Western standards, but a meaningful slowdown for an economy on which much of the developing world depends. India faces a similar trajectory. And when the world's primary growth engines lose momentum, the drag is felt everywhere. Countries teetering on the edge of positive growth risk tipping into contraction, with all the social and political instability that entails.
Europe's position is particularly precarious, as Tucker Carlson remarked on his latest podcast this week. On paper, only 10-15% of Persian Gulf energy supplies are destined for European markets. But context is everything. The continent entered the winter heating season with underground gas storage already below 30%. The Netherlands, once a pillar of European gas security, has seen reserves plummet to a catastrophic 11%. With a month and a half of winter still ahead, every percentage point of supply matters.
For Britain, the unlucky Chancellor of the Exchequer, Racheael Reeves, was blindsided by events (again) despite careful planning for the spring financial statement. British homes are particularly vulnerable at the moment, as around 20% of the country's gas supply comes from Qatar as liquid natural gas (LNG), which could add around GBP500 to households' annual bills, already under immense pressure. For them, a sigh of relief, however, as spring appears to be a saving grace as thermostats turn down.
There is no evidence that summer will bring relief for the rest of Europe. The EU's increasingly brutal heatwaves drive air-conditioning demand that rivals winter heating loads. The continent faces the unenviable task of replenishing its depleted reserves amid sustained global supply disruption - and must do so while drawing down strategic stocks once considered untouchable.
On currency markets, predictions of a dollar crash appear premature. The greenback remains anchored to the fundamentals of the American economy, which continues to post roughly 3% growth with inflation contained below 4%. The United States' $921bn trade deficit - near its post-2022 record - is a structural vulnerability, not an acute crisis. The dollar's real weakness is not economic but political: Washington's aggressive use of dollar-denominated sanctions has accelerated de-dollarisation, not because the currency is unsound, but because it is feared as a weapon.
The gold market tells a more revealing story. Prices have surged past $5,500 per troy ounce, with some analysts forecasting $5,600 in the near term. Gold's role as the ultimate safe haven is being reaffirmed in spectacular fashion, and these elevated levels are unlikely to retreat even if a ceasefire materialises.
For oil-producing nations outside the conflict zone, the picture is mixed. Higher prices mean higher revenues, and the prospect of increased supply volumes to China, India and - eventually - a chastened Europe is commercially attractive. But no economy is hermetically sealed. Higher global energy prices feed through into domestic inflation, squeeze industrial margins and invite tighter monetary policy. For countries already struggling with anaemic growth, the net effect may be negative even as headline oil revenues climb.
The geopolitical implications are perhaps the most consequential of all. A Europe pushed to the wall on energy security will find it increasingly difficult to sustain support for Ukraine (US isn't helping). With reserves dwindling and prices climbing, the fiscal and political space for continued military and economic assistance is shrinking by the week. What is clear is that Iran's strikes have altered the calculus for every major economy on earth. This is not a regional skirmish with localised consequences. It is a systemic shock to the architecture of global energy trade, and its effects will be measured in slower growth, higher prices and harder choices for years to come.
The Strait of Hormuz crisis may yet prove to be the United States' "Suez Crisis" and Europe's final jolt to break free from Washington's increasingly insane actions.
