The war in Iran has triggered what analysts are describing as the worst possible scenario for global energy markets. With shipping through the Strait of Hormuz effectively halted and major energy infrastructure across the Gulf targeted by military strikes, markets are now pricing in the largest supply disruption in the history of the oil trade.
Brent crude oil prices surged 10 to 13% to around $80-82 per barrel by March 2, then climbed further to $120 a barrel as the conflict deepened. Brent crude has risen more than 40% since fighting began on February 28, reaching about $102 per barrel. For a market that opened at mid-$60s just weeks earlier, the trajectory underscores how rapidly geopolitical risk translates into real economic pain.
The strategic importance is difficult to overstate. The Strait of Hormuz carries 20% of the world's oil through its narrow passage. Saudi Arabia's largest refinery and Qatar's export facilities have been targeted by drone attacks. The conflict has already led to the suspension of about a fifth of global crude oil and natural gas supply. Oil production of Kuwait, Iraq, Saudi Arabia, and the United Arab Emirates collectively dropped by at least 10 million barrels per day as of March 12, marking the largest supply disruption in the history of the global oil market.
What makes this crisis acute is not merely the immediate disruption but the cascading effects rippling through interconnected supply chains. Brent crude oil prices surged to $120 a barrel as it deepened and the market began pricing in the risk of sustained disruption. Analysts note that in a worst-case scenario, prices could reach $150 or more. If sustained, such levels would reshape transportation costs, consumer prices, and investment decisions across the global economy.
Asia bears the heaviest immediate burden. About 84% of crude oil and 83% of LNG that passed through the strait in 2024 was bound for Asia, with China, India, Japan and South Korea accounting for nearly 70% of those oil shipments. Countries, particularly in Asia, are scrambling to secure alternative supplies at higher prices and adopt emergency measures to manage inventories and demand. Oilfields forced to shut down across the Middle East could take days, weeks or months to return to normal, depending on the types of fields and the shutdown procedures they have undertaken.
Australia's exposure deserves particular attention. Australia imports roughly 90% of its liquid fuel, meaning world crude oil prices have a direct impact on pump prices. Petrol prices have jumped 50 cents per litre across Australia since the start of the US-Iran war. Across regional Australia, drivers have reported local service stations rationing petrol. The government has released reassuring statements about fuel stocks, but Australia has an estimated 36 days of petrol, 34 days of diesel and 32 days of jet fuel, the largest stockpile in 15 years, but still may not be enough. Australia's current emergency strategic fuel reserve is non-compliant and has been since 2012.
The economic implications extend far beyond the bowser. The war more than doubled the price of kerosene-based products like diesel and jet fuel. Airlines are rerouting flights along longer paths around the Middle East, adding to journey time and fuel costs, whilst major Middle Eastern airports have been closed. Qatar halted LNG production after a drone attack, while about 20% to 30% of global fertiliser exports pass through the Strait of Hormuz. The National Farmers' Federation president warned food prices could rise by as much as 50%.
Global institutions are mobilising emergency responses. The International Energy Agency announced a coordinated release of emergency oil reserves over 400 million barrels, the largest such action since the agency was founded. Yet energy strategist Naif Aldandeni described this as a small bandage on a large wound. At current global consumption rates, 400 million barrels would cover just four days of global consumption, or about 20 days of typical flows through the Strait.
The tension between immediate relief and fundamental resolution defines the challenge. Emergency reserves can calm panic in markets but cannot replace the lost function of a disrupted shipping corridor; the release may soften the shock temporarily but remains limited as long as the fundamental problem remains unresolved. Resumption of normal seaborne exports will require either a cessation of hostilities or total neutralisation of Iran's capability to disrupt shipping, with some facilities damaged by fighting requiring time to repair.
Economists are flagging recession risks. The economic impact has been described as the worst since at least the 1970s, echoing the supply shortages, high oil prices, currency volatility and projections of global inflation, recession and stagflation risks if disruptions persist. Economists from Capital Economics predict that if the conflict is short-lived and attacks cease, oil and LNG prices would fall back sharply with Brent crude reaching $65 per barrel by year end. But that scenario assumes rapid de-escalation; the trajectory since March 2 points in the opposite direction.
What distinguishes this crisis from past shocks is its political opacity. Trump and administration officials have given conflicting accounts of how long the war might last, with Trump saying he expected it to end very soon but also stating attacks would not stop until Iran is totally defeated. With President Trump calling for Iran's unconditional surrender and Tehran appointing the son of assassinated Supreme Leader Ali Khamenei to take his place, traders are now positioning for a longer and more severe supply disruption.
The Strait of Hormuz is not merely an energy chokepoint; it is a test of global supply chain resilience and the price of geopolitical fragmentation. The cascading economic fallout from the conflict is radiating well beyond the Gulf, reshaping markets and supply chains potentially for years to come. Australia's experience underscores a broader truth: even energy exporters cannot insulate themselves when global shipping corridors collapse and production facilities are targeted. The worst-case scenario has stopped being hypothetical.