US-Iran conflict disrupts global oil supplies, pushing crude near US$100, raising inflation, slowing growth, and intensifying energy security concerns.
The ongoing US-Iran conflict has fundamentally reshaped the global oil market, with crude prices widely anticipated to remain near US$100 per barrel over the next 12 months, according to several media reports. This outlook is primarily driven by persistent geopolitical risks and the severe constraints imposed on traffic through the vital Strait of Hormuz. The 12-week-long war has significantly disrupted global energy supplies, leading to millions of barrels in daily supply losses and a corresponding surge in global energy prices and inflation.
The Strait of Hormuz, a critical chokepoint, handles approximately 15% to 20% of global oil and liquefied natural gas (LNG) flows, making disruptions here acutely impactful. Although flows through the strait are restricted, they have not collapsed entirely. However, the prolonged closure has forced vessels to slow or pause transit due to escalating insurance costs and security risks, with marine insurers even withdrawing war risk cover for ships in the region. Morgan Stanley analysts have characterized the oil market as being in a "race against time," as the initial buffers that restrained price rises, such as elevated US crude exports and slowing Chinese imports, may not be sustainable if the strait remains closed for an extended period. The situation was further exacerbated by US President Donald Trump's rejection of Iran's latest peace proposal, which saw Brent crude futures gain sharply.
Economically, the consequences are far-reaching. The expectation of crude prices near US$100 a barrel is seen as a base case, with a lasting risk premium of US$5 to 15 per barrel for years to come. "Demand destruction" is identified as the most probable mechanism to offset impending supply deficits. A sustained increase of US 15 per barrel in oil prices could elevate global inflation by nearly 0.5 percentage points and reduce global growth momentum by 0.2 percentage points. Economies heavily reliant on fossil fuel imports, such as Japan, South Korea, Taiwan, and the European Union, are particularly vulnerable, with roughly 70% of Japan and South Korea's oil imports passing through the Strait of Hormuz. In Singapore, a trade-dependent nation that imports nearly all its energy, the impact is direct, with household electricity tariffs and pump prices expected to rise, potentially prompting the Monetary Authority of Singapore to maintain its exchange rate policy to mitigate imported inflation.
Geopolitically, the conflict has ushered in a more fragmented and inflation-sensitive global regime, characterized by supply-side shocks and diverging fiscal paths. Even the United States, a major oil and gas producer, is experiencing rising petrol prices and potential negative consumer sentiment. The industry-specific impacts are also varied; while overall oil and gas prices have surged, the gains among supermajor oil companies are uneven, with BP notably outperforming Exxon Mobil due to its trading profits and fewer production outages. The crisis has also highlighted the vulnerability of energy systems dependent on imported oil and gas, reinforcing the argument for expanding domestically produced renewable energy as a more secure and stable alternative, insulated from commodity price shocks. The long-term trajectory suggests that regional tensions may persist, with the potential for further escalation carrying significant economic and political costs globally.
