How the Israel-Iran War could cause a global recession

Tehran’s warning to close the Strait of Hormuz, a critical chokepoint for roughly 20% of global oil supplies, has sent shockwaves through commodity markets, reviving fears of a worldwide recession. The escalation follows over 24 hours of tit-for-tat airstrikes between Israel and Iran, thrusting the energy sector into the crosshairs of the conflict.

On Friday night, Israel struck a processing facility at Iran’s South Pars gas field, the world’s largest, which supplies two-thirds of Iran’s gas needs. Arab news agencies, including Tasnim, reported a massive explosion at the site’s Phase 14 onshore facility. Iran’s Energy Ministry confirmed the shutdown of an adjacent offshore platform producing 12 million cubic meters of gas daily. Energy Aspects analysts cautioned that targeting infrastructure “shifts the conflict to an economic battlefield with global repercussions.”

Iran retaliated with a stark threat: closing the Strait of Hormuz, a 33-km-wide passage that funnels over 20 million barrels of oil daily. An Iranian parliament member said the move is “under serious consideration.” Maritime Executive experts warn that even minor attacks could paralyze shipping, as spiking insurance costs and risks of misidentification deter vessels.

Markets reacted swiftly. WTI crude surged more than 7% on Friday to $73 per barrel, with Brent close behind. Deutsche Bank analysts estimate a full Hormuz closure, coupled with a halt to Iranian exports, could propel oil prices past $120 per barrel, intensifying inflation in Western economies. On Polymarket, the probability of Hormuz closing in 2025 jumped from 18% to 41% in a single day.

Vanguard Tech warned that commercial ships, particularly those linked to Israel, face risks of attack or seizure by Iran’s Revolutionary Guard navy. Vessels near U.S. or allied assets could also be caught in crossfire, worsening supply disruptions.

Israel, though reliant on Mediterranean fuel imports, faces consumer price hikes. Its Energy Ministry is bracing for a “double-digit” gasoline price surge next month if tensions persist. Security advisors urged Israeli shipping firms to reroute via the Cape of Good Hope. Iran, by contrast, risks alienating Eastern allies if it blocks Hormuz, a move it appears to hold as a last resort.

Commodity and currency markets remained volatile. Brent futures closed at $74.23 per barrel, up 7%, after a 13% intraday spike. WTI ended at $72.98. Gold, a safe-haven asset, rose 1.4% to $3,431 per ounce, nearing a record $3,500. Israel’s shekel slid to 3.61 per dollar and 4.18 per euro, reflecting heightened regional risks.

As the Israel-Iran conflict deepens, the specter of a Hormuz closure looms large, threatening to destabilize the global economy.