Iran’s effective closure of the Strait of Hormuz and Iranian attacks on key energy production facilities in Qatar and Saudi Arabia have paralysed a substantial chunk of the world’s energy supply.

For a global economy already rattled by US President Donald Trump’s tariffs and what many see as his unravelling of the post-World War II order, much now depends on how long the disruption lasts.

A sustained surge in energy prices would drive up the cost of everyday goods.

Central banks would then likely raise borrowing costs to curb inflation, dampening consumer spending and dragging down economic growth.

“It’s really a question on how long the disruption of flows through the Strait of Hormuz lasts and whether there will be destruction of physical assets,” said Anne-Sophie Corbeau, an analyst at Columbia University’s Center on Global Energy Policy.

“For the moment, the market is pricing a short disruption and no destruction. But that may change in the future. We simply do not know right now how this whole crisis ends.”

“Some countries, such as China, have ample oil reserves to help weather a temporary outage, while others do not.”

Liquefied natural gas (LNG), which is also shipped through the strait and has fewer alternative suppliers outside the region than crude oil, has already seen much steeper price rises.

European prices of LNG surged by as much as 50 percent on Monday after state-run QatarEnergy, which ships about one-fifth of global supply through the waterway, announced a halt to production following drone attacks blamed on Iran.

“Gas will be more impacted because the market was still relatively tight and stocks are low in Europe as we are at the end of winter; also, there is no replacement for the LNG lost,” Corbeau said.

Prolonged uncertainty

With US President Donald Trump signalling that he intends to continue the assault on Iran for at least several more weeks, the extent to which Tehran is willing – or able – to keep the strait closed will be critical to the global economy.

At least nine commercial vessels have been targeted in attacks in or near the strait since the start of the conflict, prompting multiple insurance firms to cancel coverage for vessels in the Gulf.

While traffic through the strait has not halted, it is down about 90 percent compared with normal levels, according to ship tracker MarineTraffic.

“The uncertainty itself is probably the most dangerous part. Supply chains hate uncertainty,” Schiffling said.

“It is possible to plan for almost anything, but not knowing what will happen makes it really challenging to adapt operations.”

On Wednesday, Trump said he had ordered the US International Development Finance Corporation to start insuring shipping lines in the region in order to keep trade flowing.

Trump also said the US Navy could begin escorting vessels through the strait if necessary.

“As long as Israel and the US are able to suppress Iranian drone and missile attacks in the strait to the point that the bulk of the oil tankers gets through, and as long as the United States provides back-up insurance for shippers and their cargo, the global economy may make it through this war without a recession,” Kilian said.

“On the other hand, if there is a severe disruption of oil traffic, the economic costs will grow the longer the disruption lasts.”