For the past 114 days, global energy markets have been held hostage by the war in Iran. The various blockades, mines and restrictions imposed on the Strait of Hormuz – the stretch of ocean through which 20% of the world’s oil and Liquefied Natural Gas (LNG) exports flow – along with significant damage to energy-related-infrastructure have created what Fatih Birol, a Turkish economist and executive director at the IEA (International Energy Agency), considers to be the largest energy crisis the world has ever faced.1
At a media event in Canberra, Birol warned that this war has caused a bigger crater in the global supply of oil than Russia’s invasion of Ukraine and both oil shocks in the 1970’s, combined. The latter comprising of the fallout from a war that also took place in the middle east, followed by a total oil embargo placed on many major western powers.
However, violently fluctuating oil prices – often seeming entirely based on, as Malcom Moore at the FT recently wrote, “raised hopes of a breakthrough in negotiations” 2 – along with governments worldwide trying their best to cushion the blow to energy markets, have provided a thick ‘fog-of-war’ obscuring the true impact this conflict has had on global energy markets and infrastructure.
So, what’s the prognosis?
Despite the stock market once again hovering around all-time-highs, suggesting that investors believe a global energy crisis is a buying opportunity, the UK’s quickening petrol-station pump readers – and their equivalents across the globe – provide a painful, unmistakable signal that something is wrong.
Headline stock-market figures, social media statements and the price of a barrel of oil all seem to be defective stethoscopes. Thus, with ‘downstream’ measures providing unclear and sometimes conflicting signals, we must follow the choppy, rubble-filled and blockaded waters upstream to accurately gauge the severity of the global energy market’s condition.
The mechanism
The conflict, through various means, made passage through the strait unsafe and, crucially, uninsurable. Ship-captains and insurers alike – with some arguing the latter hold more power than the former – must believe that travelling through the strait is entirely safe before any meaningful number of ships begin to move. Consequently, traffic through the strait has been reduced by around 90%.3
Along with creating a deficit of over 1bn barrels of crude oil, the backlog of ships has had significant ramifications along the entire supply chain. As a recent article by the FT points out,4 the first pain-point for the energy industry was a lack of “tankers willing to enter the Gulf to start to empty the region’s brimming storage tanks.”
An impeded out-flow of oil backs up refineries, storage and processing facilities and eventually requires the shutting down of production facilities and drills; almost a third of the oil wells in the region were switched off.4
Parts of this infrastructure can resume operations quickly. However, a variety of factors including time spent shut-down, corrosion and direct damage inflicted by missile-strikes cause other parts to need repair work and thus be unable to recover so fast.
In April of this year, Rystad Energy, an independent energy research company, put the total repair bill for energy infrastructure at as much as $58 billion, of which up to $50 billion falls on oil and gas facilities alone.5 The speed at which these facilities can be restored also varies, with estimated repair times for the largest LNG facility in the world reaching 5 years.6
Technicalities in the reactivation process across the value chain, as well as the sheer depth and breadth of the damage, almost ensure that the recovery process will be gradual. Unfortunately, however, irrespective of the recovery or its time frame, scars have been left in energy markets and in economies across the world.
Oil-spill-over effects
Energy is the foundation of modern society and is part of the production process for just about any good. Consequently, a hobbled energy market causes inflationary pressures across the board. In attempts to cushion the blow, Asian countries have significantly reduced oil imports and, similarly to the US and Europe, have began eating away at oil reserves.2
Over the course of the conflict, inflationary pressures have been visible in the UK, with inflation reaching 3.3% in March, and stabilising at 2.8% in May. While these figures remain well above the Bank of England’s (BoE) target of 2%, and despite cost of fuel increasing by 25% from this time last year,7 they are by no means cataclysmic. A harder hit was expected, especially given the far more severe reaction observed following Russia’s invasion of Ukraine in 2022.
It is important to note, however, that inflation due to energy-price-increases take time to move through the pipeline between oil refineries in the middle east and the kitchen table. The BoE’s cautious approach – holding rates despites lower fuel oil prices in reaction to the deal between the US and Iran – accompanies a similar foreboding story told by the Producer Price Index.
This leading indicator of inflation, measuring the rise in input costs for producers, has not stabilised. A spike in input PPI seems to confirm that even if these troubled waters have calmed down in the middle east, they may have sent a wave of inflation that is soon to arrive at our shores.
Watch out: Its not just Oil and Gas!
As the world’s focus is on the strained and strangled gargles of the oil market, at that same event in Canberra,1 Fatih Birol sought to direct attention towards a more silent killer: a shortage of hydrocarbon-necessitating materials such as fertilisers, sulphur and helium; “vital arteries of the global economy”, as Birol named them.
Fertiliser is indispensable to world food production, being used to grow approximately 50% of the world’s food, and its production is highly energy intensive – relying heavily on LNG. The shock to the LNG supply chain, because of the war, hit an already “struggling” global market, says May Angel at Reuters.8
Impeding the flow of “more than 30% of world nitrogen fertilizer exports” has driven up prices and made some farmers go without, squeezing budgets and yields worldwide.9
The other, less talked about petrochemicals – sulphur and helium – suffer similar bottlenecks also affecting production of fertiliser and a wider variety of goods ranging from semi-conductor chips to medical equipment.
What will the future look like?
For now, the most basic precondition for recovery, a durable peace, remains unmet. A watertight deal is needed before any meaningful number of tankers will move, and the interim memorandum signed this month already looks fragile: within days of agreeing to reopen the strait, Iran declared it closed once more over alleged ceasefire violations, even as Washington insisted traffic was still flowing freely.10
Even once a settlement holds, normality will require insurers to regain confidence and repairs to be carried out. The timeframe is impossible to forecast with precision, but the path back is plainly not a smooth one.
When normality does return, it is unlikely to resemble the pre-war norm. The conflict has made countries acutely aware of their dependence on one narrow stretch of ocean, and on oil itself. International relations have been strained, plans for pipelines that bypass the strait are being drawn up, and the push towards green energy has become a question of national security.4 Energy markets have shown real resilience under strain, with oil prices staying far below their 2008 peak, but it is not hard to see why neither markets nor policy will snap back into their old shape.
History offers a measure of reassurance. These are not uncharted waters: after every major oil shock since the 1970s, the world's dependence on oil as a source of energy has fallen.4 With its weak points more exposed than ever, the global energy system may yet emerge from this crisis sturdier than before.
There is even a case that cuts against the prevailing gloom. Once the conflict ends and the strait reopens, rejuvenated supply could overhang weakened demand and tip the market into a glut. That shift would carry consequences of its own in time, but Camilla Palladino at the FT calms the nerves, writing that "in the same way that oil prices didn't rocket during the crisis, a rebound in supply may not make them crater".11
Final thoughts
Energy infrastructure, unlike energy itself, can be destroyed, and the damage does not simply dissipate. But it can also be rebuilt. The speed of recovery is uncertain and the moving parts are many, yet what rises from the rubble may prove stronger than what came before.
Or at least, that is what investors appear to believe.
Footnotes
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The Guardian (opens in a new tab), Iran war energy crisis equal to 70s twin oil shocks and fallout from Ukraine war, says IEA chief, 23 March 2026. ↩ ↩2
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Financial Times (opens in a new tab), Middle East peace deal could herald oil glut next year, says IEA, 17 June 2026. ↩ ↩2
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NBC (opens in a new tab), Shipping slows to a crawl through Strait of Hormuz, threatening to snarl international trade, 4 March 2026. ↩
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Financial Times (opens in a new tab), The long way back from the Iran energy shock, June 2026. ↩ ↩2 ↩3 ↩4
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Rystad Energy (opens in a new tab), Gulf war leaves $58 billion repair bill and a global equipment crunch, 15 April 2026. ↩
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Insurance Journal (opens in a new tab), Gulf Energy Industry Will Take Years to Recover From Iran War, 24 March 2026. ↩
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The Guardian (opens in a new tab), Surprisingly benign UK inflation data signals a softer Iran war hit than feared, 17 June 2026. ↩
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Reuters (opens in a new tab), How does the Iran war affect fertiliser supplies, prices and food security?, 17 March 2026. ↩
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Reuters (opens in a new tab), Iran war deprives US farmers of affordable fertilizer as spring planting looms, 13 March 2026. ↩
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Bloomberg (opens in a new tab), Iran Says Hormuz Closed Again as Talks With US Set to Open, 20 June 2026. ↩
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Financial Times (opens in a new tab), The oil shortage is ending — and now comes the glut, 17 June 2026. ↩