What effects may an Israel-Iran conflict have on the world economy?

If tensions aren’t reduced, the ongoing attacks between Iran and Israel could have a negative impact on the world economy. Concerns that the conflict would spread to one of the major oil and gas-producing regions of the globe are mounting as Israel and Iran engage in a fourth day of deadly salvos.

Following Israel’s unexpected attack on Friday, equity markets were initially agitated but have subsequently calmed down.

Israel struck Iran’s fossil fuel industry on Saturday, with Iranian state television reporting a fire at the South Pars gasfield, a day after it had murdered a number of Iran’s senior military leaders and nuclear experts and damaged some of its nuclear facilities. Iranian authorities said the Israeli attacks have killed over 220 people, including at least 70 women and children.

Iran retaliated with a flurry of drone and ballistic missile attacks, some of which managed to breach Israeli defenses and kill at least 24 people.

“Iran must make a deal [on its nuclear program] before nothing is left,” U.S. President Donald Trump said on his Truth Social platform, warning Tehran that the next “already planned attacks” will be “even more brutal.”

Financial markets and the aviation industry are suffering as the confrontation between the two most powerful military in the Middle East intensifies into a full-fledged conflict. While investors are looking to gold as a safe haven, analysts are keeping an eye on oil prices.

Experts cautioned that a full-scale conflict may make matters even worse.

How has the price of oil changed?

Early on Monday, the global benchmark, Brent crude, rose to $74.60 a barrel.

Compared to Thursday, the day before Israel’s surprise attack, that represented an increase of over 7%.

The Strait of Hormuz is one of the main maritime lanes in the Middle East that carry a large portion of the world’s oil and other essential commodities like natural gas.

The strait connects the Arabian Sea to the Indian Ocean and is a narrow canal that divides Iran from the Gulf states.

It channels about 21 million barrels of oil each day, or one-third of the world’s seaborne oil supplies.

It is 33 kilometers (21 miles) broad at its narrowest point. The waterway’s shipping lines are much more constrained, leaving them open to assault.

The decades-old question of whether Tehran will close the maritime chokepoint has been resurrected by the Israeli-Iranian confrontation, which has caused an increase in the price of oil.

As the situation with Israel escalates, Tehran is considering closing the strait, according to Iranian news outlet IRINN, which quoted prominent hardline politician Esmail Kosari.

A worst-case scenario involving blockades in the Strait of Hormuz may cause oil prices to rise above $100 per barrel, according to Goldman Sachs.

However, Hormuz was never fully blocked during the 1980–1988 Iran–Iraq War, when both nations targeted commercial ships in the Gulf.

Furthermore, blocking the Strait of Hormuz would probably interfere with Tehran’s own exports, particularly to China, and result in the loss of significant income.

“The repercussions to closing off the strait would be severe for Tehran itself,” said Hamzeh Al Gaaod, an economic analyst with the strategic and political research firm TS Lombard.

Has this changed inflation rates around the world?

The cost of production increases in tandem with rising oil prices. Consumers eventually pay for this, particularly for products that use a lot of energy, such food, clothing, and chemicals.

If the conflict continues, nations that import oil may see slower economic development and greater inflation.

Analysts cautioned that central banks would have less leeway in attempting to rein down price increases in the future.

“G7 central bankers will be concerned about a possible energy price shock because they are currently on a [interest rate] cutting cycle,” Al Gaaod said Al Jazeera.

Although the US Federal Reserve has refrained from lowering interest rates in response to Trump’s tariffs, which have been placed on nearly every nation since he returned to office in January, the Bank of England recently dropped the base interest rate in the United Kingdom to 4.25 percent.

What is the reaction of markets?

Wall Street has suffered. The Nasdaq Composite and S&P 500 indices fell 1.3 and 1.1 percent on Friday, respectively. In the Middle East, the Tel Aviv Stock Exchange 35 Index declined 1.5% on Sunday, while Egypt’s benchmark EGX 30 index fell 7.7%.

When the news of Israel’s attacks broke, European stocks also fell. At the close of last week, the UK’s FTSE 100 ended the day 0.5 percent lower, while Germany’s DAX and France’s CAC 40 sank somewhat more than 1.1 percent.

Nonetheless, a few UK businesses came together. Defense contractor BAE Systems had a nearly 3% increase on Friday, indicating worries that hostilities may worsen.

Share prices of military suppliers including as Lockheed, Northrop Grumman, and RTX increased in the United States.

In other news, the value of the oil corporations BP and Shell increased; the former closed about 2 percent higher, while the latter closed little over 1 percent higher.

On Friday, the price of gold was also up around 1% at $3,426 an ounce, which is around the record high of $3,500 it reached in April.

With stock prices climbing and gold and oil prices declining on Monday, investors moderated some of their risk-off attitude.

Markets appear to be expecting the confrontation to be largely limited. Importantly, no US military facilities in the area have been struck by Iran, according to Al Gaaod.

How have airspace closures affected the aviation industry?

Some nations have closed their airspace, and a number of airlines have canceled or stopped flights in the Middle East.

The following is a list of flights that have been redirected or suspended:

With flights to Lebanon suspended till Sunday, Emirates, the biggest airline in the Middle East, said that it has suspended flights to and from Iraq, Jordan, Lebanon, and Iran until June 30.

All flights between Abu Dhabi and Tel Aviv have been canceled by Etihad Airways through Sunday. Customers have been urged to wait for updates regarding the status of their flights as the airline is also rerouting a number of other services.

Due to escalating tensions, Qatar Airways has temporarily canceled flights to Iran, Iraq, and Syria; travelers are encouraged to verify the status of their flights before departing.

According to other reports from Iran’s official news agency, IRNA, aviation officials have closed the nation’s airspace till further notice.

According to Iraqi official media, Iraq also suspended all airport activity and closed its airspace on Friday. One of the busiest airways in the world runs through eastern Iraq. At any given time, dozens of flights—many of which are on their way from Asia to Europe—cross there as they travel between Europe and the Gulf.

“Temporarily” closing Jordanian airspace “in anticipation of any dangers resulting from the escalation happening in the region,” according to the country’s civil aviation authority.

“There may be a short-term disruption for Middle East tourism, but only for a month or so,” according to Al Gaaod. I think travel will increase again.

“I think equity prices will continue to recover from last week as long as strikes remain contained,” he said in reference to the world’s financial markets.