Six Months Into Israel-US Operation Against Iran, Global Economy Faces Major Disruptions
Six months after Israel and the United States launched Operation "Roar of the Lion" against Iran, the global economy continues to experience significant turmoil across five key fronts, impacting energy supplies and financial markets worldwide. The conflict has caused a sharp rise in oil and fuel prices due to production disruptions in the Persian Gulf and a substantial reduction in shipments through the Strait of Hormuz. Brent crude briefly surpassed $120 per barrel in April and averaged around $90 in 2026, up from about $70 the previous year. Refined fuels, especially diesel, faced severe shortages due to halted Russian refineries and lost exports from the Gulf. Jet fuel prices initially spiked but were somewhat stabilized by increased US production and exports. With the northern hemisphere winter approaching, further disruptions in Hormuz and threats to Russian energy infrastructure could push heating fuel prices higher, exacerbating inflation.
Contrary to expectations, global stock markets largely ignored the conflict, buoyed by massive investments in artificial intelligence sectors. The MSCI global stock index reached an all-time high of $105 trillion, adding about $7 trillion since the war began, despite poor performance in Gulf region stocks. Traditional safe-haven assets failed to provide consistent protection: the US dollar rose 1.4% against major currencies, partly due to a weak Japanese yen; US Treasury bonds lost 3.5% in total yield; and gold prices fell nearly 25% since the war's start, though they rebounded over 15% recently amid renewed concerns and dollar depreciation.
The closure of the Strait of Hormuz also severely disrupted fertilizer shipments, critical for global agriculture, combined with ongoing grain export interruptions from Ukraine. The UN Food and Agriculture Organization reported food prices hitting a three-year high in July and warned of a looming wave of food inflation with effects yet to be fully felt.
The Gulf economies have suffered heavily, with Saudi exports shrinking 10% between Q1 and Q2. The UAE faces a real estate collapse in Dubai, with JPMorgan estimating a 70%-80% drop in sales, while Oxford Economics forecasts Qatar's economy contracting nearly 30% due to damage at the Ras Laffan gas facility. Stock markets in Qatar and the UAE fell about 14%, underperforming global indices by over 20 percentage points, alongside rising credit default swap costs. Bahrain, burdened by heavy debt, was hit hardest, with its debt insurance prices soaring nearly 40%.
