Energy Crisis Warning: Iran Conflict Could Send Global Economies Into Decline
The ongoing war in Iran shows little indication of easing, raising concerns that the conflict could stretch on and destabilize the wider Middle East while placing additional pressure on the global economy.
The Iran war is disrupting global oil and LNG flows as tanker traffic halts and energy facilities face attacks, raising fears of inflation, supply shortages, and economic slowdown.
As the fighting reaches the end of its first week, governments across the region are assessing the immediate damage and considering how the situation might develop. The Middle East has long been central to global oil and gas supply, but the conflict is already disrupting that role. Tankers are unable to move through hazardous waters while missiles cross the skies, some aimed at key energy infrastructure. Officials warn that prolonged fighting could deepen the economic consequences worldwide.
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Saad al-Kaabi, Qatar’s energy minister and head of its state-owned energy company, cautioned that continued hostilities could have severe economic effects. Speaking to the Financial Times on Friday, he said the conflict could damage economies globally if it continues for several weeks. According to him, worldwide GDP growth would suffer and energy costs would climb everywhere.
Over the past week, Qatar—along with other major oil and gas exporters along the Persian Gulf—has largely suspended shipments. Tanker traffic through the Strait of Hormuz, the vital waterway connecting the Gulf to international markets, has effectively stopped as operators fear attacks and insurers withdraw war-risk coverage.
Under normal conditions, about one-fifth of the world’s traded petroleum products and liquefied natural gas move through this strategic passage. Qatar contributes a significant share of those supplies, particularly LNG. The small Gulf state, roughly comparable in size to Connecticut, provides close to 19% of the global LNG market.
Earlier in the week, the Ras Laffan LNG export terminal north of the country—recognized as the world’s largest facility of its type—was struck in an Iranian drone attack. The incident forced the complex to shut down for the first time in its thirty-year history. While the full impact will depend on how long the facility remains closed, markets reacted quickly: gas prices in Europe surged by 50% on Monday, reflecting the continent’s heavy reliance on Qatari LNG imports.
Al-Kaabi noted that the scale of the damage remains unclear as assessments are still underway. Officials also do not yet know how long repairs may take.
For Qatar, the disruption threatens its reputation as a dependable supplier. The country has worked for years to establish itself as a stable LNG provider in a region often associated with volatility in energy markets. In 2018, Qatar even withdrew from OPEC—the organization of major oil producers—in a move aimed at strengthening its position as a trusted global gas exporter.
Ripple Effects Beyond Energy Prices
The consequences of a prolonged disruption would extend far beyond fuel markets. While Europe and Asia are the primary destinations for Qatari gas, al-Kaabi warned that rising energy costs would influence numerous industries across the globe.
He also emphasized that trade between Gulf nations and the rest of the world could stall if the conflict persists. Such disruptions could have significant economic consequences not only for Gulf states but also for their international trading partners. According to him, shortages of certain goods could emerge, triggering a chain reaction where factories struggle to maintain production.
Higher natural gas prices have immediate implications for electricity generation, which could drive up utility costs for households and businesses in Europe and Asia within weeks. Industries that rely heavily on energy—such as steel, aluminum, fertilizers, and chemicals—would likely be among the first to face rising expenses. Some manufacturers might reduce output or temporarily shut facilities, further complicating global supply chains already under strain.
The timing poses a particular challenge for Europe. After Russia’s invasion of Ukraine in 2022, European nations spent years reducing their reliance on Russian gas. Imports of Qatari LNG became a crucial part of their strategy to diversify energy sources. If the Ras Laffan facility remains offline for an extended period, European buyers may be forced to compete aggressively in global spot markets for alternative supplies from countries such as the United States and Australia, which could drive prices even higher.
Asian economies face similar risks. Japan, South Korea, and China rank among the largest importers of Qatari LNG. A sustained disruption would likely force these countries to consider difficult options, including using strategic reserves, purchasing emergency supplies at elevated prices, or introducing measures to reduce industrial demand.
Japan and South Korea are particularly vulnerable because their domestic energy production is limited. Energy security has been a major concern for both nations since the oil shocks of the 1970s, and a prolonged supply interruption could once again expose that longstanding weakness.
