Military Escalation in the Middle East Threatens Energy Markets and the Global Economy

The military escalation between the US, Israel, and Iran is putting exceptional pressure on energy markets. Although no significant supply disruptions have been reported yet, the risks associated with the Strait of Hormuz pose a threat to the global economy if the conflict continues. This is stated in an analysis by Coface Group.

“A conflict limited to a few days or weeks, which is the most likely scenario at the moment, should have a limited impact. However, if the conflict continues, its macroeconomic impact could be significant and go beyond the issue of energy prices,” says Ruben Nizard, Head of Sector Analyses at Coface Group.

“Firstly, for Bulgaria, this could lead to a slight increase in fuel prices, as Bulgarian refineries and importers buy at international quotations, and thus the effect is transmitted almost immediately to the final prices. Blocking key global trade routes and the increase in the price of Brent crude oil would inevitably lead to higher logistics and transportation costs for Bulgarian businesses,” said Plamen Dimitrov, manager of Coface for our country.

The other risks are also related to slower deliveries for trade and industry. “The most affected sectors in the Bulgarian economy would be transport, construction, chemical industry, retail trade, and supermarket chains. The chemical industry is particularly at risk, as over 20 percent of critical raw materials such as crude oil, nitrogen and phosphate fertilizers, plastics, polymers, etc., pass through the Strait of Hormuz,” Dimitrov added.

The attacks by the US and Israel in Iran mark an important turning point for energy markets. At the opening of trading on Monday morning, the price of the Brent variety jumped by more than 10 percent, reflecting more of an increase in the geopolitical risk premium than immediate and specific supply disruptions.

Prior to this escalation, oil markets were largely in surplus. The abundance of supply, driven by non-OPEC+ producers and the rapid recovery of inventories, kept prices under pressure (an average of $68 a barrel in 2025). The conflict is changing the situation, reintroducing significant uncertainty about the security of supplies.

The main risk is related to the Strait of Hormuz, through which about 20 percent of global oil consumption and nearly 30 percent of seaborne crude oil transport passes. Current disruptions are already leading to higher prices.

The capacity to bypass this strait is limited and insufficient to withstand severe shocks. Prolonged or repeated disruptions could push the price of Brent to triple-digit values, with the possibility of exceeding the peak of February 2022 ($122 a barrel) or even the record of 2008 ($147 a barrel).

Although Iran is not the leading producer in the region, a disruption of supplies from it would have an immediate effect on the already volatile markets. With production of over 3 million barrels per day and exports of nearly 1.5 million barrels - mainly to China - the disruption of supplies would force buyers, especially in Asia, to turn to more expensive alternatives, which would increase the pressure to raise oil prices, according to Coface.

In addition to supplies from Iran or the possible closure of the Strait of Hormuz, Iran may also attack oil infrastructure in other countries of the Persian Gulf. The impact will depend on the extent of the damage and the duration of the disruption, in a context in which OPEC+’s spare capacity – about 4 to 5 million barrels per day – remains limited and concentrated.

The stakes are much higher than the oil market itself. The Strait of Hormuz is also of key importance for the transportation of liquefied natural gas (LNG), fertilizers, industrial metals (aluminum), and petrochemicals. In addition, other strategic points, such as Bab el-Mandeb or the Suez Canal, may also be affected in the event of an escalation of the conflict in the region. This can lead to an increase in transportation costs and insurance premiums for maritime transport. This gradual disruption of supply chains creates a growing risk of shortages and inflationary pressures, especially for economies that are most dependent on energy imports.

According to them, an extreme scenario, in which oil prices remain above $100 a barrel, would trigger a new rise in global inflation and would likely force central banks to change their strategy, moving from monetary easing to widespread tightening. A sustained increase in the price of Brent crude oil by $15 could lead to a reduction in global growth by about 0.2 percentage points and an increase in inflation by nearly 0.5 percentage points. In such a context, the risk of stagflation - a combination of weak growth and high inflation - would again become a real threat to the global economy, with serious consequences for business and international trade.