US Israel Iran War Economic Impact: A Global Economy Under Siege

The Pakistan Times | Islamabad Times

US Israel Iran War Economic Impact: A Global Economy Under Siege

The US-Israel war on Iran, which began on February 28, 2026, has evolved from a regional military conflict into a systemic economic crisis with global repercussions. Beyond the immediate human toll, the war has inflicted deep wounds on the world economy through energy disruptions, supply chain fractures, and staggering financial costs.

The Strait of Hormuz: A Strategic Chokepoint

At the heart of the economic crisis lies the Strait of Hormuz, through which approximately 20 percent of the world's oil passes. Iran has effectively blockaded the strait, while the United States has responded with its own naval blockade of Iranian ports. This standoff has "strangled the global economy," according to UN Secretary-General Antonio Guterres.

UN Secretary-General has outlined three possible economic trajectories depending on the duration of the disruption. Even in the best-case scenario, global growth would fall from 3.4 to 3.1 percent and inflation would rise to 4.4 percent. If the disruption continues, 32 million people could be pushed into poverty, and 45 million more could face extreme hunger. In the worst-case scenario, the world could confront a global recession.

Oil Prices and Inflation

The energy shock has been immediate and severe. Brent crude oil prices have hovered around $118 per barrel, significantly above pre-war levels. The prolonged blockade threatens to trigger another cost-of-living crisis. Energy prices are now 25 percent higher than before the war and are expected to remain elevated.

The impact extends far beyond oil markets. Fertilizer prices have risen significantly, and helium, essential for semiconductor manufacturing, has also increased in price. Disruption to smelter activity has undermined aluminum production and exports.

The Staggering Financial Cost

The financial toll of the war is unprecedented. According to one estimate, the war has cost approximately $103.3 billion through its first 120 days. The Pentagon has requested $67 billion in supplemental funding. Linda Bilmes has warned that the conflict could cost as much as $2 billion per day, with total expenditures potentially reaching $1 trillion.

Global Economic Fragmentation

Oxford Economics has warned that the war has deepened global economic fragmentation. The International Monetary Fund has reduced its estimate of global 2026 growth from 3.5 percent to 3.0 percent. The closure of the Strait of Hormuz has exposed vulnerabilities in semiconductor supply chains, potentially raising production costs in manufacturing hubs such as Taiwan, South Korea, and Japan.

Winners and Losers

The Global South finds itself undermined again by a war not of its own making, with food prices rising to these countries' detriment. Asian countries such as India and Japan are overly dependent on oil and gas imports from the Gulf. However, countries such as Russia, Canada, and Norway have somewhat benefited from the crisis.

Conclusion

The US-Israel war on Iran is not just a military conflict but an economic one. As UN Secretary-General Guterres warned, "These consequences are not cumulative. They are exponential. The longer this vital artery is choked, the harder it will be to reverse the damage." The world economy is being strangled, and the path to recovery remains uncertain.

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