What will happen if the Israel-Iran war continues? An economic perspective
- Remin Francis I R
- Jun 25
- 2 min read
The recent escalation between Iran and Israel is more than just a regional power struggle- it carries the potential to reshape global markets and Gulf economies in ways that echo some of the most disruptive crises in modern history. If this conflict drags on, the economic fallout could be swift, sharp, and deeply destabilising. To understand the potential path ahead, we only need to look back.
Take the 1973 Yom Kippur War. What began as a military conflict quickly turned into an energy crisis when OAPEC (Organisation of Arab Petroleum Exporting Countries) imposed an oil embargo on nations supporting Israel. Oil prices surged from under $3 to nearly $12 per barrel in just four months- a 300% spike. Inflation in the U.S. tripled, GDP shrank, and the S&P 500 lost nearly half its value. Economists coined a new term: stagflation- a mix of rising prices and economic stagnation.
Then came the 1990 Gulf War. Iraq’s invasion of Kuwait didn’t just disrupt regional stability; it threatened the oil lifeline of Saudi Arabia. Oil prices doubled within three months, and the U.S. slipped into recession by year-end. Once again, the connection between war, energy markets, and economic contraction became unmistakably clear.
But not all conflicts result in sudden oil price spikes. Some, like the Iran-Iraq “Tanker War” of the 1980s, hit in slower, more insidious ways. Nearly 450 ships were attacked in the Persian Gulf, causing marine insurance premiums to soar by up to 400%. While oil prices remained subdued due to a global glut, the real cost was in logistics and risk- shipping routes had to be rerouted, and doing business in the Gulf became significantly more expensive.
So what does this mean today?
If Iran and Israel stay locked in a prolonged conflict, the biggest global concern becomes the Strait of Hormuz- a narrow passage through which about 20% of the world’s oil supply flows. Even the threat of disruption- from missile attacks or drone strikes- can shake markets. Brent crude has already shown volatility. If security deteriorates further, expect a "war-risk premium" to be priced into every barrel.
Across the Gulf, the GCC countries may not be directly involved, but they’re already feeling the tremors. In Saudi Arabia, the Tadawul All Share Index (TASI) has seen cautious trading. Wealth managers are quietly rebalancing. Mega infrastructure projects in Riyadh and Abu Dhabi continue, but international investors are becoming more selective, especially in long-gestation sectors like tourism and real estate.
In Qatar, where LNG expansion is central to economic strategy, there's rising concern over the safety of export routes through Hormuz. Meanwhile, already fragile economies like Lebanon and Iraq risk being drawn deeper into regional instability, threatening reconstruction and humanitarian support.
The Middle East is no stranger to conflict. But this time, it’s a confrontation between two powerful states, with no clear exit ramp. If the hostilities persist, don’t just watch the headlines- watch the oil flows, the inflation rates, and the shipping lanes. That’s where the real shockwaves will appear.
Because, as history reminds us, when the Middle East burns, the world often feels the heat. Research Assist: Don David (LinkedIn)
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