Why Iran war is becoming worldwide economic battleground

Countries across South Asia are scrambling to manage a deepening energy crisis triggered by the ongoing war in Iran. From rationing fuel and closing universities to shortening workweeks and altering cremation practices, governments are deploying emergency measures as the conflict sends shockwaves through global markets.

While the war has pushed gas prices higher for Americans and created a political headache for US President Donald Trump, the ripple effects abroad are far more severe. The 2020s have already seen a pandemic, Russia's invasion of Ukraine, and, more recently, Trump's "Liberation Day" tariffs, which rocked markets and panicked some countries, an analysis by Axios notes.

Now, disruptions in the Strait of Hormuz are adding another layer to an already turbulent decade.

Supply crunch drives prices up

The mechanics are clear. About 20% of the world's oil and energy products transit the Strait of Hormuz, which Iran has effectively closed.

“When supply drops sharply and demand doesn't change, prices go up and shortages result,” Axios writes.

The disruption affects not only crude oil but also diesel, jet fuel, and liquefied petroleum gas used for heating and cooking.

More than 80% of oil and petroleum products passing through the strait in 2024 were destined for Asia. JPMorgan commodities analysts told Axios that by the end of this week, crude supply cuts could approach 12 million barrels a day, creating a “highly visible” deficit in physical markets. The only way to stabilise the situation, they said, is through a “comparable reduction in consumption.”

Regional measures to conserve energy

Across South Asia, countries are responding with a mix of demand-side interventions. Bangladesh has closed universities, South Korea capped gas prices for the first time in nearly three decades, Thailand is encouraging remote work, and some civil servants in the Philippines are now working four-day weeks. Pakistan has shut schools, limited government workdays, and raised gas prices, Axios reports.

India is among the hardest hit.  The world's most populous nation is awash with reports of hoarding, theft and price gouging as citizens rush to secure supplies of increasingly scarce cylinders of liquefied petroleum gas, the Financial Times reports.

Hotels in Mumbai have closed, and Pune temporarily suspended gas-based cremations, asking residents to rely on wood or electricity.

“It is like a second COVID-19 lockdown for us,” the chairman of a popular restaurant chain told Indian Express.

Global ripple effects

Europe is bracing for rising gas prices that could push up electricity costs, prompting the EU to consider a gas price cap and other emergency measures. Japan has responded with its largest-ever oil release from national reserves while effectively capping prices.

Axios notes that China may emerge as a relative winner from the crisis. With large oil reserves and the flexibility to shift some production to coal, Beijing could benefit from higher energy prices, which may also accelerate investment in renewable energy.

Human toll

As the region struggles to cope, the human impact is becoming clear.

“We are victims of a war that is not of our choosing,” Philippines President Ferdinand R. Marcos Jr. said last week.

Axios highlights that the situation is a reminder of the interconnectedness of global markets: “When America sneezes, the world catches the flu.”

By Sabina Mammadli