Global Energy Nightmare Comes True, Global Economy at Risk

Jakarta, CNBC Indonesia – A longer war means deeper global economic shocks.

Energy analysts have long anticipated two major risks if a war involves Iran. First, attacks on oil-rich neighbouring states. Second, the closure of the Strait of Hormuz, the route that carries about one third of seaborne oil and one fifth of daily LNG trade.

Until February 28, these two risks were deemed limited because Iran stood to lose too much: relationships with Gulf states, anger from China as its main oil buyer, and the potential for counterstrikes against its own energy infrastructure.

The situation changed after the United States and Israel launched an attack on February 28, killing Iran’s supreme leader. The remnants of the regime came under enormous pressure. The two scenarios previously regarded as extreme are now unfolding together.

Iranian projectiles hit Saudi Arabia’s largest refinery, a gas liquefaction facility in Qatar, refineries in Kuwait, and the Fujairah oil industrial zone in the United Arab Emirates. The first two facilities were reported to have ceased operation. Gas fields in Israel and Kurdistan were also affected. On March 3, the US Embassy in Saudi Arabia warned of potential further attacks on the Dhahran oil complex.

At the same time, Strait of Hormuz traffic virtually halted after drone attacks on several vessels. Insurance companies halted coverage for many ships. On March 2, the Islamic Revolutionary Guard Corps stated the strait was closed and warned that ships transiting would be burned.

Energy prices jumped. Brent rose 14% since February 27 to US$83 per barrel. European gas prices reached €54 per MWh, more than 70% above the previous week.

US President Donald Trump on Tuesday (3 March 2026) said his administration would provide insurance guarantees for shipping companies and, if necessary, deploy the navy to escort tankers. Details of the policy were not clear. The statement came as markets began to assess that supply disruptions would last longer.

When Asian markets reopened on March 2, initial responses were relatively contained. Brent settled at US$78, just US$5 above pre-war levels. European gas had spiked, then closed at €44 per MWh. Most traders at the time expected the disruption to last only a few days.

That view has since changed. The main bottleneck is oil distribution. Freight rates hit record highs. On March 2, only four tankers crossed the Strait of Hormuz, far below February’s average of 52 ships per day.

Around 14 million barrels per day of crude and 4 million barrels per day of refined products normally pass through this route. About a quarter of the volume could be diverted via pipelines through Saudi Arabia and the UAE. The remainder has no emergency route.

JPMorgan estimates Iraq has around three days of storage capacity and Kuwait around 14 days before exports that normally pass through Hormuz must be curtailed. In total, about 5 million barrels per day, or around 5% of global output. Iraq has already reduced production by 1.5 million barrels per day.

Gulf exporters have not declared force majeure, but markets expect such action to be taken imminently. The Brent-Dubai spread widened sharply. Asian buyers have shifted to West Africa, Brazil, Guyana, Norway, and the United States. On March 2, Brazilian oil for May delivery to China was offered at a premium of US$10 over Brent, up from US$3.40 on February 27.

Asia became the first region to be affected. China, Japan, and South Korea have reserves for a few months but remain dependent on Middle Eastern importation. Gulf oil accounts for about a third of China’s oil consumption. China’s crude futures trading was halted after hitting the daily limit of a 9% rise.

Markets began pricing disruptions beyond a week or two. Brent could approach US$100 per barrel. If disruptions persist for months, prices could exceed US$120 as in 2022.

Additional global supply is expected to be only 1-2 million barrels per day and would take at least six months to materialise. Europe remains exposed because a fifth of its diesel imports pass through Hormuz. Diesel processing margins have surged in recent days.

The risk to gas is believed to be felt more quickly. More than 80 million tonnes of LNG per year, the majority from Qatar, pass through Hormuz in 2025. The Ras Laffan complex, closed on March 2, has a capacity of 75 million tonnes per year, or around 17% of global exports. Almost 30 ships scheduled to load LNG in March are now circling in the Arabian Sea and Indian Ocean. QatarEnergy has issued force majeure notices to a number of long-term buyers.

Last year, Qatar supplied 30% of China’s LNG imports, 45% of India’s, and 99% of Pakistan’s. The shipping premium for LNG from the Gulf coast of the United States to Asia jumped to its highest level since December 2022. On March 2, one Asian cargo was priced at a premium of 60% over the previous day.

Each week that Hormuz is closed, global LNG supply slips by about 1.5 million tonnes. If Qatar’s exports do not recover soon, European gas prices could break through €100 per MWh.

The International Monetary Fund assumes that every 10% rise in oil prices trims global GDP growth by about 0.15 percentage points and adds 0.4 percentage points to inflation in the following year. If prices rise to US$100 per barrel, global growth could be trimmed by around 0.4 percentage points and inflation could rise by 1.2 percentage points.

Big energy-importing nations face the heaviest pressure. India spends around 3% of its GDP on oil imports and has 20-25 days of stocks. Thailand is close to 5% of GDP. The impact could show in widening fiscal deficits as governments keep domestic prices subsidised.

The European Central Bank estimates that a 10% rise in oil prices adds 0.4 percentage points directly to inflation and 0.2 percentage points over three years. About one-tenth of a rise in gas prices would be passed through to inflation over three years.