The brutal aggression of the Israeli Defense Forces (IDF) and Mossad against military and civilian targets across Iran at dawn on June 13 has triggered a dangerous chain of events. The Israeli government, led by far-right Prime Minister Benjamin Netanyahu, decided to dismantle Iran’s nuclear program through violent means — by destroying nuclear and conventional military facilities and assassinating Iranian scientists and senior generals. Israel’s leadership chose not to wait for the outcome of diplomatic negotiations between Iran and the United States over a possible freeze on Iran’s nuclear program. The Iranians, in turn, responded in kind.

War – The Enemy of Ordinary People’s Wallets

A relentless exchange of sophisticated and devastating firepower has begun between two major civilizations of the Middle East. Ballistic and cruise missiles, drones, bombs, and other weaponry are flying over the Zagros Mountains and the Golan Heights. How this largely unexpected conflict will end is difficult to predict, but the longer it lasts, the more catastrophic the consequences will be for the regional and global economy. Every day of war brings costs that citizens around the world will eventually feel. We may be on the verge of a new major economic crisis — just when it seemed the global economy was stabilizing after the COVID-19 pandemic and the Russian invasion of Ukraine.

Rising Oil Prices and Falling Stock Markets

By Friday afternoon, the conflict’s negative effects were already evident on global stock markets. Fears of disruptions to global oil flows pushed oil prices up and stock values down. The S&P 500 index fell by 1.1%, the Dow Jones Industrial Average dropped by 1.8%, and the Nasdaq Composite lost 1.3%. U.S. stocks hit their lowest levels on Friday after Iran launched ballistic missiles at Israel.

Companies heavily reliant on fuel suffered the biggest losses. Cruise line Carnival saw its stock fall by 4.9%, United Airlines dropped by 4.4%, and Norwegian Cruise Line Holdings declined by 5%. On the other hand, as expected, the biggest gains were seen in the oil markets. The price of a barrel of U.S. crude oil rose by 7.3% to $72.98. Brent crude, the global benchmark, jumped 7% to $74.23 per barrel. While a 7% spike may not seem huge in global terms, if prices continue to rise daily at a similar rate, the consequences will be deeply worrying for all of us.

Big Corporate Profits

Overshadowed by the chaos were the gains of American oil producers and companies that could benefit from intensified Israeli-Iranian conflict. Shares of ExxonMobil rose by 2.2%, while ConocoPhillips gained 2.4%, as rising crude prices hinted at higher profits. Defense contractors also saw stock increases. Lockheed Martin, Northrop Grumman, and RTX (formerly Raytheon) all climbed more than 3%. Gold prices also spiked as investors sought safe-haven assets, with an ounce of gold rising by 1.4%. Inflation in the U.S. remained around 2%, but could increase due to Trump-era tariffs whose full effects have yet to be felt.

The Rising Cost of Transportation

Simply put, any spike in oil markets means that consumers worldwide will eventually face higher prices. It’s important to remember that Iran is the world’s 7th largest oil producer, although Western sanctions have limited its exports. A regional war in the Middle East could slow Iranian oil deliveries and drive already high crude prices even higher. If the conflict continues, oil prices could surge to $100 or more per barrel in just a few days or weeks.

Higher global oil prices and the resulting rise in transportation costs drive inflation and pose serious economic challenges for many countries. Consumers around the world will feel the pinch. Asian countries that import large volumes of Iranian oil — including China, India, Malaysia, the United Arab Emirates, and even Venezuela (under U.S. sanctions) — could be especially affected. Venezuela, for example, imports significant amounts of Iranian oil to blend with its own for export.

Explosions in Tel Aviv as Iranian missiles rip through city

The Domino Effect

Instability in the Persian Gulf region could also disrupt other major oil exporters, such as Saudi Arabia, Kuwait, and Iraq, deepening global energy insecurity. This could lead to supply shortages and sudden price spikes in energy and commodities. Nearly every national economy would be impacted, especially those heavily dependent on oil imports. The consequences could become apocalyptic if Iran decided to close the Strait of Hormuz, which connects the Persian Gulf to the Gulf of Oman and the Indian Ocean. Such a move would send global oil prices skyrocketing.

The Hormuz Strait Question

Iran has never officially closed the Strait of Hormuz, but it disrupted it during the Iran-Iraq War in the 1980s. At the time, Iran used missile strikes and sabotage to hinder Iraqi, Kuwaiti, and Saudi tankers, causing oil prices to surge by over 150%. If something similar were to happen in 2025, global oil prices could increase by 200%, 300%, or even 400%. National governments and oil companies would be forced to seek alternative, longer, and more expensive shipping routes. This would increase transportation costs and subsequently raise prices on fuel and consumer goods.

Investors and markets would react negatively, increasing financial instability. Oil-importing countries (like China, Japan, South Korea, India, and EU member states) would likely take measures to secure their energy supplies. Some might even consider military intervention to forcibly reopen the Strait of Hormuz — a move that would further escalate geopolitical tensions.

The Houthi Factor

One must not forget Yemen’s Houthi rebels, who have threatened to target American, British, French, and other Western vessels in the Red Sea and Suez Canal. In recent years, the Houthis have launched drone and missile attacks on mostly container ships, and these attacks could now intensify. Such threats raise risks for global shipping and trade, possibly disrupting supply chains.

Every Day Matters

These scenarios could unfold if the Iran-Israel conflict drags on for several weeks or months. It would trigger inflation, recession, and shortages of consumer goods — especially high-tech items like microchips, computers, and electronics — significantly affecting their availability. If the conflict ends within a few days, such consequences can likely be avoided, as emphasized by most economists. Bankers, stockbrokers, and traders are glued to their screens, waiting to see what happens next. Of course, war is also an excuse for opportunists to raise prices and profit from others’ misfortune. All we can do now is hope the conflict ends as soon as possible.

Author: Matija Šerić