Under Trump, America often launches weekend military campaigns. One theory suggests Trump waits for stock markets to close to prevent chaos, but this is unlikely now. The weekend is over, and five days into the war. But it would be unwise to draw conclusions.
When the Americans and the Israelis decided to invade Iran, it was expected that they would consider many factors that might affect their goals. However, it appears they failed to consider how much global economies depend on energy supplies in the region and the products passing through the Strait of Hormuz.
The Strait of Hormuz is a waterway, one of the most important shipping routes in the world. Nearly 11 per cent of global maritime trade passes through the Strait. It is the only maritime outlet for Gulf energy exports to global markets. Crude oil from Saudi Arabia, the UAE, Iraq, Kuwait and Iran passes through Hormuz along with large volumes of liquefied natural gas (LNG) from Qatar. Roughly 20 million barrels of oil per day move through the Strait, representing about 20–25 per cent of the world’s seaborne oil trade and roughly one-fifth of global fuel consumption. About 20 per cent of global LNG also passes through this waterway. Those oil and LNG shipments are essential for regional producers and Asian major energy importers.
Despite its economic importance, the waterway has been a centre of military confrontations, notably the 1980s “Tanker War”. In 1981, Iraq attacked ships to weaken Iran’s war effort by targeting its military supplies and later exports by sea. In retaliation, Iran attacked the ships of Iraq’s trading partners and lenders. Needless to say, that 40-year-old strategy is making a comeback.
On Saturday evening, when the bombings started, Tehran said it had closed navigation. A few within a few hours, at least 150 tankers were reported waiting on Sunday morning. Several tanker owners, oil majors, and trading houses announced they have suspended crude oil, fuel, and LNG shipments through the Strait of Hormuz. War-risk insurers have issued cancellation notices to a logjam of stalled ships. Brokers say premiums could jump by as much as 50 per cent when available. This is evidence that any disruption in the Strait of Hormuz triggers global energy price spikes and supply chain instability. Experts declare that pipeline alternatives cannot fully replace maritime throughput via Hormuz.
Similarly, Iran had reportedly bombed several energy facilities of Qatar, Saudi Arabia and Kuwait. The strikes targeted core hydrocarbon assets, refineries and storage facilities with the intent of deliberately disrupting the global energy supply chain. Markets reacted immediately. Oil and gas prices are now rising, as shortages are expected. Investors and speculators are watching closely to cash in, despite OPEC+ announcing that other members will supplement the short-term interruption.
For example, benchmark Dutch and British wholesale gas prices have increased by almost 50 per cent since Qatar Energy announced it would halt gas production.
For crude oil, there was a rise of about 10-12 per cent, given that the Strait of Hormuz handles 20-25 per cent of global oil flows. This is a big jump in oil prices, as oil markets hardly move more than 2-3 per cent during normal trading days. In terms of currency, oil prices stood at about $72–$73 per barrel before the escalation, but after the attacks, they traded around $79–$80 per barrel, with an intraday peak of roughly $82 per barrel. The worrying thing is that analysts predict oil prices could rise above $100 per barrel if the war persists. This will not be good for the global economy.
The silver lining here is that stock markets are not as shaky as the energy market, except for Airline stocks that lost 5.8 per cent due to flight disruption risk. The US and UK stock markets lost less than 2 per cent, while Japan’s stock market fell 2.4%, a large drop in one session. There is no reason to panic here as COVID’s Great Lockdown saw these markets lose 30 per cent. The key variable now is whether the oil supply is actually disrupted. If oil rises to $100 per barrel, equity markets will be affected much further.
For Nigeria, higher oil prices will bring back memories of Jonathan’s years, when the country operated its budget in surplus and had an excess crude oil account to spend. Some may recall the fallout between the Governors and the Federal government on the demand to spend more.
Currently, the 2026 budget benchmarks crude oil at $64.85 per barrel. And with a rise above that figure, the amount the government will borrow to fund its budget spending will be lower than expected. Also, as OPEC+ signals that members and partners may raise output to steady markets, Nigeria has the opportunity to expand crude exports within its quota and earn more dollars per barrel. The 2026 expectation is to produce 1.84 million barrels per day (bpd). Nigeria's OPEC+ crude output quota is 1.5 million bpd, but we pumped only 1.48 million bpd in January, based on OPEC data. Given that oil still accounts for roughly 80–90% of export earnings and a good chunk of government revenue, even a $5–10 rise in crude oil prices will increase the foreign reserves, ease pressure on the naira, and narrow the fiscal deficit.
But the average Nigerian will face the other side of the coin as Nigeria is an import-dependent economy. Food is imported, and even the Dangote refinery is thought to be importing crude oil. A higher global oil price will raise petrol import costs and transport prices. That feeds into domestic inflation, which is presently very high. So, the country might gain revenue if things are done properly, but households face higher fuel, food, and fare costs.
Globally, rising oil prices act as a tax on importers and a windfall for exporters. Because energy feeds directly into transport and food prices, inflation is expected in the months to come, as seen during COVID and the Ukraine war’s supply chain issues. Energy exporters such as Nigeria and OPEC producers will see stronger external balances and currencies, while energy-import-dependent economies will see the opposite, with a fear of recession. The US dollar often strengthens in such situations. It is not because the US is immune, but because it remains the primary reserve and invoicing currency for oil.
As an economist and a pacifist, I despise wars like these. The longer the war continues, the greater the global economic pressure.