The escalation of the conflict between the United States and Israel and Iran is creating conditions for a classic energy shock. The risk is no longer limited to a geopolitical premium embedded in oil prices but increasingly includes real disruptions to logistics, insurance and transport security in the Strait of Hormuz. This strategic maritime chokepoint handles roughly one-fifth of global oil supplies, meaning that any sustained disruption to shipping can quickly translate into a spike in energy prices and an inflationary shock across many economies.
The U.S. administration is attempting to mitigate this risk through a combination of quasi-market and military measures. According to Reuters, President Donald Trump has announced that the United States is prepared to escort oil tankers through the Strait of Hormuz if necessary. At the same time, he instructed the U.S. Development Finance Corporation to launch political risk insurance and financial guarantees for maritime trade in the region, particularly for energy cargo. The program is intended to be available to all shipping companies at reasonable rates. Such measures aim to limit increases in freight and insurance costs and reduce the risk of supply disruptions. However, the fact that tanker escorts are even being considered demonstrates that markets view the threat as serious and potentially long-lasting.
From a macroeconomic perspective, the key question is whether the disruptions will remain a short-term episode or evolve into a sustained reduction in the “effective supply” of oil and gas caused by transport limitations and the risk of attacks on infrastructure. Scenarios analyzed by Bloomberg suggest that in the event of severe disruptions to regional energy flows and infrastructure strikes, the price of WTI crude oil could rise to as much as $108 per barrel and remain elevated for months. In such a scenario, the resulting energy shock would deliver a strong inflationary impulse while simultaneously weakening economic growth.
According to the same projections, inflation in the United States could increase by around 0.8 percentage points, pushing it above 3%, while the impact in the euro area and the United Kingdom could be even stronger—around 1.1 percentage points. Europe is particularly vulnerable not only because of oil imports but also due to its exposure to natural gas and LNG prices, which tend to pass through quickly into industrial costs and household energy bills.
The economic picture in the United States is somewhat more mixed. Higher gasoline prices reduce consumers’ disposable income, but elevated oil prices improve conditions for the domestic energy sector, including shale producers. This partially offsets the negative impact on GDP. The central challenge remains monetary policy: rising energy prices push inflation higher and complicate the Federal Reserve’s policy decisions. The ultimate response will depend on whether inflation expectations remain anchored or begin to spill over into wages and broader price dynamics.
Risks to the global economy increase alongside the military dynamics of the conflict, which determine the probability of prolonged disruptions. The conflict has now entered its fifth day, with U.S. and Israeli strikes on Iranian targets continuing while Iran responds with missile and drone attacks across the region. This escalation raises the risk to energy infrastructure and the stability of global supply flows. The longer uncertainty persists, the greater the likelihood that higher insurance and logistics costs will become a permanent component of oil prices, shifting the shock from a temporary market panic to a sustained inflationary pressure.
In this environment, energy-importing economies are particularly exposed. China, one of the world’s largest oil importers, faces deteriorating trade conditions and an externally driven inflationary impulse at a time when its economic growth is already under pressure. Bloomberg notes that in a scenario of persistently high oil prices, inflationary pressures in China would rise while economic growth would weaken further, amplifying the global slowdown.
The key conclusion for economic policy is relatively straightforward. If U.S. stabilisation measures—including tanker escorts and insurance support described by Reuters—succeed in keeping the Strait of Hormuz open and limiting the escalation of transport costs, the shock may remain temporary. However, if energy flows are significantly disrupted or infrastructure attacks intensify, the scenario could shift toward a stagflationary combination of higher inflation and slower growth. In that case, central banks may be forced to pause interest-rate cuts or maintain a more hawkish stance despite weakening economic conditions.
