The U.S.-Israeli attack on Iran on February 28 spurred conflict across the Middle East, with an ongoing war in Iran. This led Iran to respond by closing the Strait of Hormuz, a key trade corridor connecting Europe and Asia. Despite talks of a ceasefire and the possibility of reopening the waterway, there is still significant trade disruption, particularly in the oil and gas sector.
Experts are warning that this could be the “Biggest global oil supply disruptions in history”, an event that has led fuel prices to soar. With little certainty around the potential resolution of the conflict, the trade disruption will likely have a knock-on effect on supply chains for several months.
The Disruption
Following the attack on Iran in February, the Iranian Revolutionary Guard (IRGC) issued warnings forbidding passage through the Strait. The IRGC has since boarded and attacked merchant ships and has laid sea mines in the Strait. Since April 13, the U.S. has blockaded Iranian ports, thereby establishing a “dual blockade” of the Strait.
Around 25% of the world’s oil trade and 20% of its liquefied natural gas (LNG) traverse the Strait of Hormuz, which connects the Persian Gulf with the Gulf of Oman and the Arabian Sea, under normal operation.
In March, the International Energy Agency (IEA) warned that the closure of the Strait triggered the largest disruption to global oil markets in history, causing the crude supply to fall by between 8 and 10 million barrels per day (bpd). This led IEA member states to release 400 million barrels of crude from strategic stockpiles to stabilize oil prices and compensate for shortages.
Threat to Global Energy Security
The IEA has since doubled down on its warnings, cautioning a severe threat to energy security if the Middle East conflict continues.
In April, the head of the IEA, Fatih Birol, warned, “We are facing the biggest energy security threat in history.” Birol added, “As of today, we’ve lost 13 million barrels per day of oil… and there are major disruptions in vital commodities.”
In previous weeks, Birol urged governments to reduce fuel use and shift to alternative energy sources where possible. This led several countries to introduce temporary measures to reduce power usage, such as a four-day work week and reduced air conditioning use.
“I expect, first of all, nuclear power will get a boost. … Renewables will grow very strongly – solar, wind and others — [and] I expect electric cars will benefit from this,” said Birol. He also suggested governments could use alternative fossil fuels to reduce the shortage. “In some countries, I expect that coal may also see a push and go back up, especially in some big countries in Asia.”
There is a risk of slipping back into a reliance on dirtier fossil fuels, such as coal, as several countries around the globe face severe energy shortages. This could drive up carbon emissions in the coming months and limit global green transition progress. However, governments may also accelerate the rollout of new renewable energy capacity, as it becomes clear that greater energy diversification is key to achieving energy security.
Birol went on to address some of the main issues surrounding the fuel shortage. “I really hope, first of all, that the strait is opened and refinery exports start from there, but we may well need to take some measures in Europe to reduce air travel as well,” he said.
He suggested that the more strategic oil reserves may be released to alleviate the shortages. However, this would not provide a long-term solution. To fix the problem, the Strait of Hormuz must be reopened, he emphasized.
The Current Situation
The World Bank agrees with the IEA assessment of the energy crisis. The organization stated in its latest Commodity Markets Outlook, published on April 28, that we can expect a 24% surge in energy prices this year due to the Iran war and the closure of the Strait of Hormuz.
This spike would be the most significant energy price spike since the Russian invasion of Ukraine in 2022. The World Bank expects it to drive up inflation and stall economic progress in developing countries.
The increase in energy and fertilizer prices is expected to lead to a broad 16% rise in overall commodity costs during 2026, according to the report. Meanwhile, the global fertilizer shortage could have severe knock-on effects, as farmers are unable to purchase enough to grow their crops.
The World Bank said that if the conflict proves more protracted or spreads to involve more regional actors, price pressures will intensify. Meanwhile, higher fuel prices could dampen global growth, negatively affecting job creation and industrial development in both emerging and advanced economies.
In April, the IMF revised its 2026 global growth forecast down by 0.2% from its previous projection, to 3.1%. The agency also increased its global inflation forecast to 4.4%. It warned that if the energy volatility continues into 2027, global growth could fall to as low as 2%.
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