At the time of this article, with the United States/Israel war with Iran nearing its fourth week, the price of a barrel of Brent Crude Oil is hovering around $110. The international oil benchmark is near that price, as well. International prices for liquefied natural gas (LNG) have jumped more than 50 percent. The oil trade is globally integrated, which means that higher prices are felt worldwide. The market for LNG is more fragmented, so its effects are felt regionally. These increases are due to several factors, including both Iran and the United States targeting energy infrastructure in the Persian Gulf region, as well as the effective closure of the Strait of Hormuz. For example, not only are shipments of oil not leaving the Persian Gulf, but Qatar, as the supplier of 20 percent of the world’s LNG, has shut down its production because of the war. 

The constraints on energy supply have both economic and geopolitical implications. The loss of oil shipments from the Gulf has required the United States and the International Energy Agency to loosen supplies from strategic reserves. But expected releases of 400 million barrels from those reserves equate to four days’ worth of global supply, or about a 20-day supply from the Persian Gulf region that has been cut off due to the war. The President has issued an order temporarily lifting sanctions on the sale of Russian oil for one month, which will increase revenue for Russia from between $3.3 billion and $4.9 billion at a time when Russia’s falling energy receipts pushed its budget deficit to more than 90 percent of its target for the year. Sanction relief could provide increased revenue for Russia to continue its war with Ukraine. 

Much of the supplies disrupted from the Middle East support countries in Asia and Europe. Lack of alternative sources of energy is likely to cause slowdowns in manufacturing that rely on energy. In addition, China has suspended all refined petroleum exports, including diesel and jet fuel. 

Airfares are beginning to rise as a result of the increased cost of fuel. Oceania countries will deplete 80 percent of their jet fuel reserves within 36 days, while countries in Africa will deplete their reserves within 23 days. Many poorer countries are already closing schools, rationing fuel and shortening work weeks. 

Other industries adversely affected include fertilizer and drugs, which rely on chemicals produced in the Gulf. A crunch in the supply of fertilizer will likely cause increases in food costs. Aluminum manufactured in Qatar relies on raw materials that are no longer coming into the country. Steel prices have also gone up due to the lack of supply from Iranian steel fabricators. Helium, a byproduct of LNG used for cooling super magnets used to make semiconductor chips, will affect the prices for those vital products.