The global economy’s resilience is being tested as never before since the Covid-19 pandemic, as the Iran conflict drives oil to $91.89 a barrel and triggers a cascade of financial disruptions across every major market. The scale and speed of the economic shock — a more than 25% weekly oil price surge, three-year highs in European gas prices, and stock market falls across three continents — has left policymakers and investors scrambling to assess the damage.
The oil price surge has been driven by a uniquely severe combination of disruptions. The Strait of Hormuz has been closed to normal commercial traffic by Iran’s threats and attacks. Gulf storage facilities are filling rapidly, with Kuwait already cutting production and Saudi Arabia and the UAE expected to face the same crisis within 20 days. Qatar’s LNG infrastructure has been damaged, disrupting roughly 20% of global LNG supply. All of these shocks are happening simultaneously.
The historical comparison that keeps coming up is the early Covid-19 pandemic — the last time the oil market saw weekly price moves of this magnitude. The comparison is instructive: Covid created a demand shock so severe that oil prices briefly went negative. The current crisis is creating a supply shock so severe that it threatens to remove some of the world’s largest producers from the market entirely. Both scenarios are extraordinary; this one carries significant inflationary risk that Covid — a deflationary demand shock — did not.
Qatar’s energy minister has issued the most alarming projection: all Gulf exporters could halt production within weeks if the conflict continues, pushing oil to $150 a barrel. Even the current level — $91 — is causing significant economic pain. A jump to $150 would represent a level of energy cost that has historically been associated with recession in major oil-importing economies.
Financial markets have processed this week’s events with the seriousness they deserve. Stock markets fell sharply globally, bond yields surged to crisis levels, rate cut expectations were abandoned, and airlines issued profit warnings. The question now is not whether this week has changed the economic outlook — it clearly has — but whether the global economy has the resilience to absorb what may be coming.