Macroscope | Iran war disruption just one of many threats to global markets

For a moment on March 9, it seemed like global investors were starting to get to grips with the scale and severity of the economic fallout from the rapidly escalating war in Iran. At one point, Brent crude, the global benchmark, surged to nearly US$120 a barrel, double the level it was trading at in early January.

Yet no sooner did US President Donald Trump try to allay fears in markets by announcing that the war would be over “very soon” than prices fell back to below US$90. Since then, they have begun to creep back up towards US$100.

The wild swings in the oil market attest to the unpredictability of a conflict whose toxic combination of age-old Middle Eastern rivalries, commodity shocks, strategic miscalculations and presidential whim presents one of the biggest challenges to the global economy and markets in decades.

The sharp drop in crude prices this week belies the enormous damage caused by the effective closure of the Strait of Hormuz, the vital maritime chokepoint whose blockage “represents one of the most significant crude oil supply disruptions in modern history”, according to energy and shipping analytics firm Kpler.

Asia is bearing the brunt of the supply crunch given the region’s heavy reliance on energy transited via the Strait of Hormuz. In a report on March 6, Nomura said Asia was “at the epicentre of the energy security shock” and “faces potential stagflation if disruptions persist beyond a month”.