Impact of Gulf Conflict on Global Energy Markets and Supply Chains

It’s the biggest threat to the global economy since the seventies. Energy markets are facing a massive supply shock. All because of the escalating war in the Gulf. Iran and the US-Israel forces have been targeting major oil infrastructure for the last three days alone.

Benchmark Brent crude is now over $118. Some trading sessions even hit $120. Why? It’s tied directly to the Strait of Hormuz . That narrow waterway is crucial. About twenty percent of all the world’s petroleum and LNG flows right through there every single day.

And that’s where the real pressure is building. The Islamic Revolutionary Guard Corps is claiming control of the strait. They’re threatening ships trying to pass. They’ve effectively stopped.

This immediately threatens stability. We’re seeing imported inflation kick in fast. Fuel costs are just cascading through every supply chain.

The math is grim.

They rely so heavily on hydrocarbons from West Asia.

Japan and South Korea are hit hardest in Asia. They import ninety-five and seventy percent of their oil from that region.

South Korea’s President Lee Jae Myung just announced fuel price caps. It’s the first time in almost thirty years. He wants to ease the burden on their manufacturing-heavy economy. He said they need to introduce a ceiling system for petroleum products that have seen these huge price increases.

Japan is doing something similar. They’ve told their domestic oil reserves to prepare for potential releases. They hold enough stock to cover about two hundred and fifty-four days of consumption.

Meanwhile, Vietnam and the Philippines are trying different routes. Vietnam is slashing import tariffs to zero on things like diesel and gasoline to stabilize their own markets. In the Philippines, they’re pushing for a four-day work week for civil servants to cut down on fuel use. President Marcos also ordered state agencies to cut electricity and fuel use by ten to twenty percent.

China, the world’s second-largest economy, is also moving. Reports say they’ve asked their major refiners to stop exporting diesel and gasoline, prioritizing domestic needs instead. Thailand, for instance, has halted its own oil exports even though they had two months of supply secured.

Things are even more severe in fragile economies. Myanmar and Bangladesh are dealing with this much harder. Myanmar has started rationing fuel based on vehicle license plates. Bangladesh has shut down universities just to conserve electricity and fuel.

The G7 nations are looking at a coordinated response. They’re planning to intervene to stabilize these volatile markets.

French President Macron stressed that using strategic reserves is an option being considered. There needs to be a unified response from the world’s leading economies.

The IEA, which started after the 1973 crisis, requires members to keep emergency stocks for at least ninety days of net imports. France holds 118 days worth of stock. The US has a huge strategic petroleum reserve.

But there’s a big sticking point. Analysts are skeptical. They see this potential release as just a temporary fix. If the Strait of Hormuz stays shut, an SPR release might only cover two or three weeks of normal flow.

There’s a sense of division among the G7 too. The US seems keen on increasing its grip on global fossil fuel markets. That might create friction with European partners, who are really sensitive to immediate spot-market swings.

India is in a tough spot, too. As the world’s third-largest oil consumer, they import over eighty-five percent of their crude needs. This situation is precarious.

The conflict has pushed India’s crude basket above $80 per barrel. The Rupee has hit record lows against the US dollar. But it’s not just about the fuel cost. India is also dealing with a "fertilizer shock." Imports of urea and ammonia from West Asia are disrupted. That threatens their food security.

She said the impact isn't expected to be substantial right now. Retail inflation has stayed within the central bank's acceptable range.

To deal with the shortage, India is continuing to gamble on Russian oil imports. They are taking advantage of temporary US waivers for crude already at sea. Sources inside the government say they don't need permission to source fuel from Russia, which is still their biggest crude supplier.

The petroleum ministry assured the public, too. They claim India is "well stocked" with over 250 million barrels of crude and products to handle short-term disruptions.