War in Iran Sends Global Economic Shockwaves, Disrupts Energy Markets

On February 28, the United States and Israel launched a joint military operation against Iran. In the period since, Iranian military and infrastructural targets have been destroyed, in addition to successful decapitation strikes launched against numerous members of its leadership, including Supreme Leader Ayatollah Ali Khamenei. Iran has responded forcefully, launching strikes against multiple countries in the region, including multiple US military installations. As the conflict drags on and widens in scope, increasing global economic and political repercussions become clearer. 

The Strait of Hormuz, adjacent to the southern coast of Iran, is an economically vital waterway supporting the transport of a significant share of the world's crude oil and natural

gas from gulf-coast states to the rest of the world. Shortly after the conflict began, Iran ordered the closure of the strait, severing global energy supply lines. Ship traffic has been widely halted, and regional producers – including a significant portion of Iraqi suppliers – are slowing production to accommodate the major closure. Oil prices domestically have seen a major shock upwards, risking political backlash against the current administration. President Trump has promised military support in moving production through the region, which has been complicated by geopolitical considerations made by allied nations and additional concerns around the viability of transporting any supplies through a region with the risk of military action by Iran in response. 

This regional instability is risking impacts on other economies tied to shipping in the region, which has complicated global shipping-insurance markets that have faced volatile circumstances as American and global activity to protect markets is shaking. Additional

geopolitical concerns have emerged, including complexities in the Iranian relationship with China. China denounced the joint US-Israeli military action against Iran, but has done little else to aid Iran, a geopolitical and economic ally. China relies heavily on oil and natural gas moved through the Strait of Hormuz, which had already been undergoing a period of energy-market turbulence after the ousting Nicolás Maduro, the former Venezuelan president whose country is a key energy supplier for the Chinese economy. 

Iran has selected Mojtaba Khamenei, the hard-line son of its previous supreme leader, to succeed his father and assume the responsibility of guiding the nation through the war. He has since announced that he will augment Iranian defiance of the United States and Israel, threatening to accelerate the growing conflict as the US and Iran have continued their aggressive campaign against Iranian targets.