Iran war is squeezing the global economy—and exposing new ironies

“The war in the Middle East is creating the largest supply disruption in the history of the global oil market,” the Paris-based International Energy Agency (IEA) said in its much-anticipated monthly report on Thursday.

According to the agency, global supplies have plunged by 8 million barrels a day to 98.8 million barrels a day.

Iran’s interruption of oil flows through the Strait of Hormuz—through which roughly one-fifth of the world’s oil passes—has created uncertainty for many countries, including India.

What was predicted to be a quick campaign for the US and Israel is turning out to be anything but. Overnight on Friday (13 March), US forces struck military targets on Kharg Island, Iran’s main oil export terminal in the Persian Gulf. US President Donald Trump warned that oil infrastructure on the island could be next if Iran disrupted shipping in the region.

The first is international fuel supplies.

Iran has attacked at least 16 ships in the Strait of Hormuz since the war began on 28 February. Tehran has also warned that oil prices could nearly double to $200 a barrel as retaliation escalates.

Beyond choking shipping through the Strait, Iran has also targeted oil infrastructure in neighbouring Gulf countries. Missiles and drones have reportedly struck data centres, while banks and financial institutions have been threatened. Subsea cables have also reportedly been caught in the crossfire.

Meanwhile, attacks on airports in the region, particularly Dubai, have disrupted flights in and out of the Gulf.

None of this is good news for the region.

Several Gulf economies had begun transitioning away from dependence on oil revenues, attracting foreign investment and positioning themselves as hubs for innovation, artificial intelligence, data centres, tourism and financial services.

The war has cast a long shadow over these ambitions. It may take time for international investors and expatriates to regain confidence in a region still marked by deep ethnic and religious divisions.

He argues that Iran is playing “the long game.”

With Iran controlling the northern shore of the Gulf and its Houthi allies positioned near the entrance to the Red Sea and along the route to the Suez Canal, Nasr wrote that Tehran is “perfectly positioned to squeeze the global economy from both sides of the Arabian Peninsula.”

“Those in command of Iran today are veterans of asymmetric wars in Iraq and Syria. They are now applying the same strategy to fighting the US on the battlefield of the global economy,” he said.

Nasr also warned that even a ceasefire may not restore stability. “Businesses, investors and tourists may not return to the Gulf states if they assume that war could resume again,” he said.

Iran, meanwhile, says it will accept a ceasefire only with international guarantees for its sovereignty, which could imply a direct role for Russia and China, Nasr noted.

“Iran’s leaders entered this war with the goal of ensuring it will be the last one. Either it breaks them or radically changes the country’s circumstances. They are betting on surviving long enough and squeezing the global economy hard enough to realise that goal,” he added.

“Nobody knows who the leader is, so there is no one who can announce surrender,” Trump was quoted as saying by Axios.

On Friday, Trump posted on Truth Social:

“Iran’s Navy is gone, their Air Force is no longer, missiles, drones and everything else are being decimated, and their leaders have been wiped from the face of the earth.”

But reports also suggested that Mojtaba Khamenei had been named Supreme Leader to succeed his father Ayatollah Ali Khamenei, who was reportedly killed by the US and Israel.

There is also Masoud Pezeshkian, Iran’s president, with whom Prime Minister Narendra Modi recently held a phone conversation. Alongside him is Ali Larijani, the former nuclear negotiator.

Both Mojtaba Khamenei and Ali Larijani have issued statements challenging the US. And on Friday, Pezeshkian and other senior Iranian leaders appeared publicly at the International Quds Day rally.

First, US military bases in Gulf countries, meant to protect them from Iran, have arguably become their vulnerability. Iran says it is targeting these countries precisely because they host US forces.

Second, remember the criticism from Trump, Treasury Secretary Scott Bessent and trade adviser Peter Navarro when India continued buying Russian oil? Given the turmoil triggered by the US-Israel attacks on Iran, Russian oil now appears far more acceptable.

Third, recall the humiliation of Ukrainian President Volodymyr Zelenskyy during his White House visit in February last year. Today, Ukraine’s expertise in countering Iranian-made Shahed drones could prove invaluable.

In August 2025, Zelenskyy reportedly offered battle-proven technology to counter such drones to the Trump administration, according to Axios. The offer was rejected.

There is also a striking economic imbalance.

A Shahed drone costs roughly $20,000, while the US-made Patriot missile used to intercept it costs around $4 million.

Against that backdrop, reports that the US has spent a record $11.3 billion so far in the conflict begin to appear entirely plausible.

The US is considering trade investigations against India and 15 other economies, including China and the European Union, after Trump’s tariffs were set aside by the US Supreme Court.

These investigations will be conducted under Section 301 of the Trade Act of 1974, according to US Trade Representative Jamieson Greer. The law allows the US to impose tariffs on imports from countries deemed to have engaged in unfair trade practices.

Greer said the probes will examine “acts, policies, and practices of certain economies relating to structural excess capacity and production in manufacturing sectors.”

India’s ambitions to become a manufacturing hub for select sectors could therefore face new scrutiny. How these investigations might affect India remains uncertain. India’s manufacturing scale is not comparable with that of Germany or China.

In China’s case, however, concerns about excess capacity are more obvious. Chinese electric vehicle maker BYD has been aggressively expanding its overseas manufacturing footprint, with factories in Uzbekistan, Thailand, Brazil, Hungary and Turkey.

With Trump around, there is no dearth of challenges nor tight rope walking.

Elizabeth Roche is an associate professor of practice, O.P. Jindal Global University, Sonipat, Haryana.