Geopolitical tensions are escalating following surprise U.S. and Israeli airstrikes on Iran, raising concerns about growing uncertainty in the global economy. Following the recent U.S. Supreme Court ruling that reciprocal tariffs are illegal, analysts warn the world economy could face significant impact depending on whether the conflict escalates further.
According to reports from the Wall Street Journal, Bloomberg and other major international media outlets on June 1 (local time), the crisis has put the global shipping industry on high alert as risks mount of a blockade of the Strait of Hormuz, through which approximately 20% of the world's seaborne oil passes.
Iran's Revolutionary Guard Corps has already warned that navigation through the strait is unsafe. Observers note that a prolonged blockade of the strait in retaliation for U.S. and Israeli airstrikes could trigger chaos including a surge in oil prices.
International oil prices have already risen approximately 20% this year amid tensions between the United States and Iran. Brent crude futures, the global benchmark, closed at $72.82 per barrel on the London exchange on May 27. Trading in Brent crude futures resumes at 11 p.m. on June 1 (8 a.m. June 2 Korea time).
A spike in oil prices could drive up production and transportation costs for goods worldwide and intensify inflationary pressure. This could put the brakes on interest rate cuts by major economies including the United States and even raise the possibility of rate hikes.
In a recent report, Capital Economics stated: "Even limited Iranian airstrikes could push oil prices above $80 per barrel, and a prolonged conflict could disrupt crude supply chains and drive prices higher still. This could have a real and powerful impact on global inflation."
According to Capital Economics, if international oil prices rise to $100 per barrel, the global average inflation rate is expected to increase by an additional 0.6 to 0.7 percentage points.
The impact of the crisis on global stock markets is also drawing attention. Inflation concerns driven by surging oil prices could trigger risk aversion and spark a sell-off in equity markets. This development could pose another headwind for U.S. markets, particularly as concerns persist that AI's disruptive innovation could bring down established industries.
On May 28, the S&P 500 and Nasdaq Composite indices on the New York Stock Exchange fell 0.43% and 0.92% respectively from the previous session. Concerns are mounting that a surge in oil and gas prices could lead to a global stock market crash and worldwide recession.
However, some analysts predict the economic damage will be short-lived. They argue that upward pressure on oil prices could be offset as OPEC and OPEC+ pursue large-scale production increases, while Saudi Arabia and the United Arab Emirates can use alternative export routes bypassing the Strait of Hormuz.
Some analysts also suggest President Trump never intended to push the conflict to extremes. They point to the choice of a weekend—when financial markets are closed—for the airstrikes as an apparent attempt to minimize economic shock, as well as the approaching midterm elections. Given that rising prices and a market crash would burden his administration, Trump is likely to employ a mix of tough and conciliatory measures to manage the situation.