Iran war reshapes global energy markets in 3 lasting ways

The framework deal between the US and Iran may reopen the Strait of Hormuz, but the 3 1/2-month conflict has already set in motion structural shifts in energy markets that a truce alone cannot reverse.

"The world has never experienced a disruption to energy supply of such magnitude," Fatih Birol, executive director of the International Energy Agency, said in April, comparing the combined oil-and-gas crisis to the 1970s oil shocks.

The near-total blockade of the strait — which handles about 21% of global oil trade — sent gasoline prices above $4 a gallon in the US and pushed crude benchmarks to multiyear highs. The OECD now forecasts global growth will slow to 2.8% in 2026 from 3.4% in 2025, a contraction driven primarily by the war's economic toll. The Pentagon estimated in May that the conflict had already cost US taxpayers about $29 billion.

The reopening of the strait, expected under the 60-day memorandum of understanding signed June 15, does not restore pre-war conditions. The International Transport Workers' Federation said the backlog of stranded vessels and crew changes means a return to normal shipping patterns is weeks, if not months, away. More fundamentally, the war has permanently altered how nations think about energy dependence.

The conflict that began Feb. 28, when the US and Israel launched bombing campaigns against Iran, killed at least 3,400 people in Iran and thousands more in Lebanon, according to reports. Thirteen US service members died. The war was never popular at home: about 60% of American adults surveyed by Pew said the US made the "wrong decision" in attacking Iran.

Energy Security Gets a Hard Rethink

The most enduring consequence may be the acceleration of energy diversification. Countries across Asia and Europe that depend on Persian Gulf imports are racing to secure alternatives. South Korea and Japan have turned to coal as a stopgap, while longer-term investment is flowing into solar, wind and nuclear power. Birol noted the crisis was more severe than the 1970s oil shocks, which reshaped energy policy for a generation.

The shift in power among energy producers is already visible. Gulf producers, US shale operators and American energy exporters are jockeying to fill supply gaps and lock in long-term contracts. The war has effectively accelerated a reordering of global energy supply chains that was already underway after Russia's invasion of Ukraine.

The Economic Toll Extends Beyond Oil

The downstream impact has been acute in developing economies. The UN warned that spiking energy and fertilizer costs could drive 45 million people into acute hunger if the war continued through June. The Institute for Economics and Peace, a nonpartisan think tank, estimated that a resumption of hostilities could cost the global economy about $2.2 trillion.

The OECD's growth downgrade — to 2.8% from 3.4% — reflects the broad-based damage. Ayhan Kose, the World Bank's deputy chief economist, said last week that "many developing economies are entering this shock with thinner buffers and fewer shock absorbers."

ING analysts described the impact on fertilizer and food markets as "a tragedy unfolding in slow motion," warning that even with a truce, "the outlook is likely to remain fragile."

The 60-day negotiating window opened by the memorandum will test whether the US and Iran can convert a temporary halt into a durable settlement. The last time Washington and Tehran reached a comparable framework — the 2015 Joint Comprehensive Plan of Action — the US withdrew in 2018 under Trump's first term. That history, combined with the mutual distrust evident in the competing narratives around the current deal, suggests the path to a final agreement remains uncertain.

This article is for informational purposes only and does not constitute investment advice.