The U.S.-Israeli strikes on Iran that began February 28 have set off the biggest energy shock in years. Here is a grounded look at what happened, what the numbers say, and where this could go.
How it get started
This did not happen overnight. The U.S. and Israel had been watching Iran for months as its economy collapsed, protests spread across 100 cities, and the rial hit record lows. By February 2026, three rounds of indirect diplomacy in Geneva had failed. On February 28, U.S. B-2 stealth bombers struck Iranian ballistic missile facilities. The stated goal was to dismantle Iran’s military apparatus. Within days, Iran’s Supreme Leader was killed.
Iran did not absorb the strikes quietly. It launched missiles and drones at Israel, the UAE, Qatar, Kuwait, Bahrain, Jordan, and Saudi Arabia – in effect pulling the entire Gulf region into a single, interconnected crisis. The Strait of Hormuz, the narrow waterway connecting the Persian Gulf to the rest of the world, was declared closed by Iran. Tanker traffic came to a near standstill. What had been a bilateral confrontation became a regional one, and markets noticed immediately.
The Strait of Hormuz is not just a shipping lane – it is the artery through which roughly one-fifth of the world’s oil and gas flows every single day.
Oil and Gas – The Numbers and Why They Matter
Brent crude opened 2026 around $60 a barrel. By early March it was trading between $79 and $84 – a rise of more than 30% in roughly two months. That alone would be a significant story. What makes this one different is that the supply disruption is real and physical, not just speculative fear.
Tanker traffic through the Strait of Hormuz – the passage that handles around 20% of global oil consumption – has effectively halted. Ship insurers have stopped issuing coverage for Gulf routes, making transit economically impossible for most operators even before Iran fires a single warning shot at a vessel. Those ships that are moving are rerouting around the Cape of Good Hope at the southern tip of Africa, adding weeks to delivery times and thousands of dollars per voyage in additional costs.
Natural gas markets took a separate hit when Qatar – which supplies around 20% of global liquefied natural gas – halted LNG production after drone strikes hit key facilities. European natural gas futures surged nearly 38% in a single trading session. Europe, which had already been running down its gas reserves, is now in a particularly tight position.
OPEC+ announced a production increase of roughly 0.2% of global supply starting April. Saudi Arabia and the UAE have already been pumping more. But analysts were blunt: without safe shipping routes, those extra barrels simply cannot reach buyers. Iraq may even have to cut production entirely if it cannot export through the Gulf. The OPEC announcement changed very little about the market mood.
In a contained scenario – limited strikes, restored shipping within weeks – most forecasters see Brent settling back toward the $70s. HSBC’s scenario work places a prolonged conflict at $80-90. If the Strait blockade holds and regional war spreads, RBC’s Helima Croft says oil above $100 becomes the base case. Deutsche Bank analysts raised a worst-case figure of $200 in an extended full-blockade scenario – a number most traders consider extreme but no longer impossible.
Inflation – What Ordinary People Will Feel
Oil is not just a fuel. It is embedded in almost everything – the cost of shipping goods across oceans, the cost of manufacturing plastics, the cost of running a freight truck or a passenger airline. When oil prices move sharply, everything downstream eventually moves with them.
Goldman Sachs economists estimate that a 10% rise in oil prices adds roughly 0.28 percentage points to U.S. headline inflation. That may sound small, but it compounds. If Brent stays elevated throughout the second quarter, economists project developed-market inflation could end up 0.5 to 0.8 percentage points higher than current forecasts. For central banks that have spent three years fighting inflation back toward their 2% targets, that is a meaningful setback.
In the United States, the odds of a June Federal Reserve rate cut have already fallen – from roughly 50% a month ago to around 30% now. In Europe and the UK, traders who had been pricing in cuts are beginning to consider the possibility of year-end hikes instead. The reasoning is straightforward: if higher fuel costs feed into wage demands and producer prices, central banks may be forced to tighten even as growth slows.
Capital Economics’ Neil Shearing offers the more measured view – if oil prices retrace over the coming months, the inflation impact will likely be modest and short-lived. The critical variable is duration. A three-week conflict resolves itself. A three-month one does not.
What Governments Are Doing
The immediate policy response has been about damage control – securing energy supply, stabilizing currencies, and reassuring markets.
In Washington, Treasury Secretary Scott Bessent publicly stressed that crude markets are well-supplied through U.S., Brazilian, and Canadian production. President Trump announced that the U.S. Navy would escort oil tankers through the Strait and that a federal agency would provide political-risk insurance for Gulf shipping. The logic is practical – if the government backstops the risk that private insurers have walked away from, tankers can move again and the supply crunch eases.
India’s response has been urgent. Officials are actively seeking alternative crude sources in case Gulf disruptions last beyond 10 to 15 days. India holds around 25 days of crude in strategic reserves and comparable stocks of refined fuels – a cushion, but not an unlimited one. With Qatar’s LNG plants knocked out, natural gas is now short too, and some industrial users have already begun rationing. India is reportedly negotiating with Russia to redirect 9 to 10 million barrels of oil already in transit, and may increase Russian oil imports overall. The Ministry of External Affairs has stated plainly that any major Gulf war carries serious consequences for the Indian economy.
Japan and South Korea have tapped emergency fuel stockpiles and arranged naval escorts for their tanker shipments. The European Union is weighing both gas storage releases and diplomatic pressure to keep trade lanes open. The common thread across all these responses is urgency – governments recognize that a prolonged disruption is not a theoretical risk anymore, it is an active one.
The Federal Reserve is now caught between a conflict that pushes inflation higher and pressure from the White House to cut rates. Those two objectives point in opposite directions.
Three Scenarios – Short, Prolonged, and Worst Case
Analysts have broadly coalesced around three paths from here. The outcome will depend largely on how long the Strait remains effectively closed and whether Iran or its proxies escalate attacks on Gulf energy infrastructure.
In the first scenario, markets absorb the shock and move on relatively quickly. In the second, central banks face an uncomfortable few quarters but manage through it. In the third, the global economy faces a genuine stress test – not unlike the 1973 and 1979 oil shocks, which triggered recessions across the developed world.
Winners, Losers, and What Investors Are Watching
Every crisis creates asymmetry. The current one is no different.
The clear beneficiaries are energy producers. U.S. shale companies, Brazilian offshore operators, and Canadian oil sands producers are all watching their revenues climb with every dollar Brent rises. Defense contractors are another obvious beneficiary. Commodities-related equities have broadly held up better than the rest of the market.
The losers are more numerous. Airlines are absorbing higher jet fuel costs while demand softens. Auto manufacturers face both higher input costs and weaker consumer spending. Shipping companies outside the Gulf face higher insurance and longer routes. Emerging-market economies that import oil – India prominently among them – face a simultaneous hit to their trade balance, currency, and domestic inflation. For consumers in these countries, the effect is felt at the fuel pump, in utility bills, and eventually in grocery prices.
The Bottom Line
The Iran war has already delivered one of the sharpest energy shocks in recent memory. Brent crude is up more than 30% since January. The world’s most important oil and gas shipping corridor is effectively shut. Markets from Seoul to Mumbai have taken serious hits, and the inflation progress that central banks spent years achieving is now under threat.
Governments are responding – with naval escorts, insurance backstops, emergency stockpiles, and alternative supply searches. These measures can buy time, but they cannot substitute for a functioning Strait of Hormuz indefinitely.
The honest answer is that nobody knows how this resolves. The economic impact of a short, contained conflict is manageable. The impact of a long one is not. What we do know is that billions of people who have no stake in this conflict will feel its consequences – in their energy bills, in their grocery costs, and in the interest rates their central banks set. That is the real economic story of this war, and it is only beginning to unfold.
Note-This analysis draws on market data, analyst reports from various sources, and reporting through March 4, 2026. Figures reflect conditions at time of publication. The conflict is ongoing and the situation remains fluid.
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