War involving Iran could trigger global energy shock across markets

The report warns that while the impact would be global, some countries are more exposed than others and less able to absorb the shock.

Europe is particularly vulnerable. A new energy shock is already reviving painful memories of the fallout from Russia’s full-scale invasion of Ukraine, which exposed the region’s dependence on energy imports and drove double-digit inflation.

Germany, with its heavy reliance on industrial output, is among the most exposed to rising energy prices. While manufacturing activity has recently stabilized for the first time since 2022, the country remains vulnerable to a broader global slowdown due to its export-driven economy.

A large stimulus package announced last year may help cushion the impact, but Germany’s ability to provide further support is constrained by expected budget deficits.

Italy also faces risks due to its large manufacturing base and relatively high reliance on oil and gas in its energy mix.

The United Kingdom remains heavily dependent on gas-fired power generation, more so than other major European economies. Electricity prices are closely tied to gas prices and have risen faster than oil prices since the start of the conflict.

Price caps may soften the initial inflationary impact, but they risk pushing interest rates higher. The UK could remain the G7 country with the highest borrowing costs amid rising unemployment, while fiscal constraints limit support for businesses and households.

Japan is another key area of concern, importing around 95% of its oil from the Middle East, with nearly 90% transported through the Strait of Hormuz.

This dependence is adding to inflationary pressure already fueled by a weak yen, raising the cost of food and everyday goods in a country heavily reliant on imported resources.

The Gulf region itself faces direct economic risks. Some analysts already forecast economic contraction this year, despite earlier expectations of steady growth.

A sharp increase in oil and gas prices would not offset the impact if shipping routes through the Strait of Hormuz are disrupted. Countries such as Kuwait, Qatar, and Bahrain could struggle to export hydrocarbons under such conditions.

The conflict may also disrupt remittances — a key source of income for many regional economies, totaling tens of billions of dollars annually.

India is another vulnerable major economy, importing around 90% of its crude oil and nearly half of its liquefied petroleum gas. Much of this supply also passes through the Strait of Hormuz.

Economists have already begun revising down India’s growth forecasts, while the rupee has fallen to record lows.

Türkiye, which borders Iran, is preparing for potential refugee inflows and rising geopolitical uncertainty. The country’s central bank is already under pressure, having paused interest rate cuts and spent up to $23 billion in reserves to stabilize the currency.

Several countries already facing economic fragility are particularly at risk.

Sri Lanka has introduced emergency energy-saving measures, including public-sector shutdown days, school closures, and restrictions on non-essential transport. Fuel purchases are now limited through a national rationing system.

Pakistan, which narrowly avoided a full-scale economic crisis two years ago, has raised fuel prices sharply and closed schools for two weeks. The government has cut fuel subsidies, restricted public spending, and reduced the use of official vehicles.

Egypt faces rising fuel and food costs alongside the risk of declining revenues from the Suez Canal and tourism, which generated nearly $20 billion last year. Debt servicing has also become more difficult as the national currency has weakened by nearly 9% since the start of the conflict.

The escalation follows a series of military developments.

Israel and the United States carried out strikes on Iran on Feb. 28. In response, Iran launched ballistic missiles at Israel and attacked U.S. military bases in Qatar, the UAE, Bahrain, Kuwait, Saudi Arabia, and Jordan.

On March 2, QatarEnergy confirmed the suspension of liquefied natural gas (LNG) production at its Ras Laffan and Mesaieed facilities.

According to market data, Qatar supplied about 7% of Europe’s LNG imports in 2025.

Oil prices surged to their highest levels since 2022 on March 9. A statement by U.S. President Donald Trump on March 10 further influenced global oil markets.

That same day, the International Energy Agency proposed releasing strategic oil reserves to stabilize prices following the escalation.

On March 19, Iranian missile strikes hit the Ras Laffan industrial area in Qatar twice within 12 hours, causing major damage and fires at one of the world’s largest LNG hubs.