The only certainty in the modern economic system is the uncertainty within it. In the short span of only two months this year, the world has woken up to the crisis in Venezuela, Greenland and most recently the Supreme Court tariff shakeup. Nevertheless, the global economic order has managed to remain considerably resilient even though growth remains subdued. As the US-Israeli assault on Iran and the latter’s retaliatory actions including those targeted toward Gulf nations have no end in sight, the question of whether the global economy will walk out relatively unscathed or worse hangs heavily in mind. At the time of writing, it is imperative to note that the Middle-Eastern conflict is still young and a lot could take place over the next few hours, days, weeks or months that might either startle or reassure. Accordingly, the views expressed below are provisional and may change as the war plots its course.
What has happened so far?
Whilst the US and Israel continue to justify the war with Iran as a pre-emptive measure, the lack of an imminent threat to rationalize this stance inevitably makes this a war of choice. The socio-political unrest within Iran and the freefall of its economy due to crippling sanctions along with the weakened defenses after the scuffle with Israel has made the nation vulnerable, an opportunity to exploit. The objective of this war, according to the White House is to ‘ensure that Iran does not obtain a nuclear weapon’ and ‘dismantle the Iranian regime’s security apparatus, prioritizing locations that posed an imminent threat’. On the contrary, Iran has repeatedly said its nuclear activities are entirely peaceful. The attacks began at a time when the United States and Iran planned to resume negotiations after consulting their capitals with technical discussions expected to take place during the first week of March after constructive progress was achieved in talks between both nations pertaining to Tehran’s nuclear program in Geneva, though no breakthrough was achieved.
At the present moment, Iran continues to retaliate by attacking Israel and US bases in the region after the killing of the Supreme Leader and around 40 top Iranian officials. Gulf nations affected thus far by attacks from either Iran or Israel include Bahrain, Iraq, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates and most recently Lebanon. Currently, there seems to be no cessation in sight.
The Global Economic Impact
The Strait of Hormuz through which one-fifth of the global oil and LNG shipments travel through from the Middle East mainly towards Asia has unsurprisingly caused anxiety within markets since a complete shutdown of the narrow chokepoint by Iran is well within the realm of possibilities which could result in oil prices surpassing the $100 per barrel mark. However, a more likely scenario is the halting of oil purchase from Iran which could hurt its already shattered markets. This may result in oil prices reaching as high as $80 per barrel. Though Iran supplies oil to China, its production is not critical to global oil consumption as it makes up only less than 3% of the global supply. Presently, given the excess supply of oil available in the global market, apart from the initial spike seen immediately after the attacks in isn’t any short-term pressure for the prices to increase, though a prolonged conflict may result in prices reaching as high as the two scenarios mentioned above. Simultaneously, safe haven assets are expected to move upwards as they usually would during periods of turmoil. The bullish run by gold and silver in 2025 along with safe currencies such as the Swiss Franc can be expected to continue as investors seek to protect their wealth, though once again the extent of this upward trajectory also hinges on the duration of the conflict. Additionally shipping markets have also been disrupted, with tanker movements curtailed and insurance costs rising steeply, further tightening global supply chains.
Economics around the world may experience some degree of increased macroeconomic stress. Sharp spikes in global energy prices have the potential to raise input costs for manufacturers and households alike, feeding into broader inflationary pressures that central banks in the United States, Europe, and Japan may be reluctant to ignore. Higher fuel and transportation costs risk slowing consumer spending and business investment, potentially dampening already fragile growth prospects. Emerging markets in particular may end up bearing the brunt of the financial fallout, as currencies weaken in response to higher oil import costs and capital outflows. Oil-sensitive economies, particularly in Asia and parts of Africa, are experiencing heightened volatility, while Gulf economies face a dual shock of financial outflows and elevated geopolitical risk despite currency pegs.
The global financial markets are undoubtedly experiencing a turbulent period. Recently markets saw steep sell-offs as fears of AI-related disruption towards major businesses continue to threaten investors. In the US alone, this fear has translated to a decline in the Nasdaq Composite (a major stock market index that focuses primarily on tech stocks) by more than 3% in February. The new Iran conflict, the latest blow to the markets can be expected to turn indexes red and keep risk-appetite low, particularly until the trajectory and duration of the conflict can be gauged.
The South Asian Impact
With millions of migrant workers from India, Pakistan, Bangladesh, and Sri Lanka employed across Gulf economies, disruptions caused by retaliatory strikes and infrastructure damage, particularly in central locations such as Abu Dhabi, have already resulted in casualties and raised the possibility of large-scale evacuations. This poses a direct threat to remittance inflows, which are critical for South Asia as they make up a substantial share of GDP in countries like Nepal and Pakistan. A prolonged disruption risks triggering balance-of-payments stress, particularly for smaller and more vulnerable economies.
Higher crude prices are increasing import bills across South Asia, weakening exchange rates and weakening current account positions, while also feeding into domestic inflation through higher fuel and transport costs. At the same time, logistical disruptions from restricted airspace over Iran and the Gulf are increasing transportation and freight costs thereby obstructing export operations. For economies reliant on energy imports and external demand, these developments represent a significant downside risk particularly if the conflict prolongs.