The ongoing conflict in the Middle East continues to influence the global economy, with significant impacts on both the energy and aviation sectors. One week after military strikes targeted Iran, oil prices have surged near $90 per barrel, driven by disruptions to supply routes and damage to regional infrastructure.
Experts and international organizations, including the IMF, warn that a prolonged conflict could have severe consequences for market stability, inflation, and growth. The IMF's chief has highlighted the potential for extended instability to push energy prices higher and slow economic recovery worldwide.
Energy Infrastructure and Oil Market Response
In the region, multiple critical energy facilities have been targeted, including the Ras Tanura refinery in Saudi Arabia and LNG terminals in Qatar. These attacks have caused refinery shutdowns and fires, leading to a sharp increase in oil prices, with Brent crude still trading above $80 per barrel due to ongoing supply concerns. Iran's retaliatory actions have damaged Gulf states’ infrastructure, further disrupting exports and elevating regional gas prices by over 52 percent.
“Brent surged this week, adding about 18 per cent in risk premium, reflecting the risk of disruption through the Strait of Hormuz and oil export infrastructure,” said Ahmad Assiri, a research strategist at Pepperstone.
Vessel traffic through the Strait of Hormuz, one of the world's most vital oil transit chokepoints, has practically halted due to threats and regional instability, underscoring the potential for severe supply disruptions.
Aviation Sector Disruptions
The conflict has caused the suspension of flights over the region, with over 29,500 cancellations affecting numerous airlines. Gulf carriers such as Emirates and Etihad Airways have temporarily closed their airspace, resulting in operational challenges and financial losses. Both airlines are gradually resuming flights, with Emirates aiming for a near-normal schedule soon. The crisis has also brought increased insurance premiums and fuel costs, while airline inventories of purchased hedges offer some mitigation against soaring prices.
Despite these setbacks, Gulf airlines are believed to have strong financial positions and strategic networks, which could facilitate swift recovery once regional stability returns. Still, long-term uncertainty remains, with the potential for further economic fallout if the conflict escalates.
