The escalating conflict between former U.S. President Donald Trump and Iran risks delivering a severe blow to a global economy already reeling from the historic tariff hikes Trump himself imposed. An oil shock triggered by the war would fuel a sharp rise in inflation worldwide.
Regional Fallout
For Europe, the conflict revives fears that persistently higher energy prices could push the economy to the brink of recession. In the United States, the Federal Reserve finds itself in a bind—caught between rising inflation pressures from the war and political pressure from the president to cut interest rates.
For China, the end of discounted Iranian oil imports adds further strain atop existing challenges: Trump’s trade tariffs and the ongoing collapse of its real estate market.
Bloomberg Economics’ Scenarios
Bloomberg Economics has modeled potential outcomes for oil prices, major economies, and Iran’s future. A diplomatic resolution remains possible: Washington and Tehran could reach an understanding, allowing oil markets to return to pre-crisis levels—around $65 per barrel—and sparing the global economy a heavy blow. Yet recent developments suggest the worst may still be ahead.
The largest oil refinery in Saudi Arabia has shut down. Qatar has closed the world’s biggest liquefied natural gas (LNG) facility. And the Strait of Hormuz—the critical maritime chokepoint through which about 20% of the world’s oil flows—has effectively been sealed off.
In this environment, oil and natural gas prices have already surged. Stock markets have taken a sharp hit, while U.S. Treasury yields have risen as investors scale back expectations of Federal Reserve rate cuts.
A Severe Scenario
In a high-impact scenario, Bloomberg Economics assumes Trump’s warnings of a “big wave” of attacks, Israel’s aim to topple the Islamic Republic, and Tehran’s gamble that it can withstand its adversaries. Under this outlook, hostilities escalate—with Iranian strikes increasingly targeting critical energy infrastructure, halting production altogether.
The U.S. could deploy air defense systems to protect tankers transiting the Strait, in addition to naval escorts and insurance guarantees announced by Trump on March 3, 2026. Still, risks would remain extremely high.
Based on academic research and past supply disruptions, Bloomberg estimates that a 1% drop in global oil supply lifts prices by roughly 4%. A prolonged closure of the Strait of Hormuz would therefore push prices up by about 80% from pre-war levels—reaching approximately $108 per barrel.
In a more adverse scenario, these elevated prices could persist through the fourth quarter of the year.