The oil and gas crisis triggered by the blockade of the strait of Hormuz is “more serious than the ones in 1973, 1979 and 2022 together”, the head of the International Energy Agency (IEA) has said.
Speaking as Donald Trump’s deadline for Iran to reopen the waterway approached, Fatih Birol told Le Figaro newspaper that the impact of the Middle East conflict on the oil market was larger than the combined force of the twin shocks of the 1970s and the fallout from Russia’s invasion of Ukraine.
The IEA executive director also warned that the countries most at risk were developing nations, which would suffer from higher oil and gas prices, higher food prices and a general acceleration of inflation, while European countries, Japan and Australia would also feel an impact.
Oil prices seesawed around the $110 (£83) a barrel mark on Tuesday, rising above that level after Trump warned that a “whole civilization will die tonight” unless Iran made a deal, before later easing to just below.
Oil price chart
Investors are growing increasingly anxious as Trump escalates his threats against Iran, demanding that it reopen the strait of Hormuz as part of any deal to stop the war.
The US president posted on his Truth Social site on Tuesday: “A whole civilization will die tonight, never to be brought back again.” There were also reports the US had hit military targets on Kharg Island, the site of a key Iranian oil export terminal.
Daniela Hathorn, a senior market analyst at Capital.com, said: “Markets are once again on edge as the US-Iran conflict enters a critical phase, with investors effectively trading against another countdown clock set by the Trump administration.
“The situation has evolved into a near-term binary outcome: either escalation through direct strikes on Iranian infrastructure, or a last-minute de-escalation that could trigger a sharp reversal in risk assets. For now, the absence of a clear path forward is keeping markets volatile and indecisive.”
On Monday, Trump set a deadline of 8pm US eastern time the following day (1am UK Wednesday) for Iran to agree a deal with Washington or face fresh attacks on civil infrastructure, including power plants.
European markets fell on Tuesday after Trump’s latest threat. In London, the blue-chip FTSE 100 share index closed 0.84% down. Germany’s DAX fell 1.1% and France’s CAC 40 lost 0.7%.
Wall Street opened lower, with the Dow Jones industrial average dipping by 296 points, or 0.64%, to 46,373.
Stock markets in Asia were mixed, with Japan’s Nikkei flat and South Korea’s Kospi rising by 1.1%. Hong Kong’s Hang Seng dropped by 0.7%.
Markets have been choppy since the US-Israel attack on Iran in February, as the de facto closure of the strait of Hormuz has fed fears around inflation and rattled investor confidence.
On Monday, Kristalina Georgieva, the head of the International Monetary Fund, said the war was likely to lead to higher inflation and slower global growth.
Georgieva told Reuters that before the war began the IMF had expected a small upgrade in its expectation for global growth of 3.3% in 2026 and 3.2% in 2027. Instead, she said, “all roads now lead to higher prices and slower growth”. The IMF is expected to publish its report on the world economic outlook next week.
Drivers in the UK have been hit by the shock. The RAC reported there were “significant fuel price rises” over Easter, with petrol up 2.6p a litre to 157.02p and diesel up 4.2p to 189.42p over the bank holiday weekend.
The Iran war is also pushing the British economy towards stagflation, a poll of purchasing managers at UK companies found. Service sector growth was the weakest in 11 months in March, the data provider S&P Global reported on Tuesday, owing to falling business and consumer spending.
Thomas Pugh, the chief economist at the leading audit, tax and consulting company RSM UK, said: “The inevitable conclusion from this morning’s final PMI numbers for March is that the UK is in for another bout of stagflation, even if the conflict ends soon. If it drags on longer, a recession looks likely.”
