The Global Economic Impact of the Conflict in Iran

The world economy is currently facing a major challenge as the conflict in Iran continues. For more than two months, the Strait of Hormuz—a narrow and strategically important waterway used for shipping goods—has been effectively closed to merchant ships. This blockade, which began following US-Israeli strikes on Iran, has created a global energy crisis and disrupted the supply of essential materials.

Major global businesses are already feeling the weight of this instability. According to The Guardian, the car manufacturer Toyota reported a £3bn loss in its latest financial year. The company explained that it is struggling to cover the rising costs of parts and materials, as well as a drop in sales. Takanori Azuma, Toyota’s chief accounting officer, noted that the company cannot fully offset the negative impact of the conflict, which has affected everything from fuel costs to the price of paint used in vehicle assembly plants.

In Southeast Asia, leaders are working together to find solutions to the economic pain caused by the war. During a recent summit of the Association of Southeast Asian Nations (ASEAN) in the Philippines, members agreed to create a regional fuel-sharing framework. This plan aims to help countries manage the energy crisis, as the region relies on the Middle East for more than half of its crude oil. However, Philippine President Ferdinand Marcos Jr. admitted that the details of this plan are still being finalized. He warned that while the leaders are working toward unity, the economic consequences of the war will likely persist for a long time, stating that a few weeks of disruption will take years to correct.

Africa is also experiencing the full impact of the crisis. According to Deutsche Welle, the blockade has led to canceled flights, long lines at petrol stations, and empty fields across the continent. The lack of access to global supply chains has hit the fertilizer industry particularly hard. Before the conflict, nearly half of the sulfur used in global phosphate fertilizers passed through the Strait of Hormuz. As a result, farmers are now facing massive price hikes for chemicals needed to grow food. Grain SA, an association of grain producers in South Africa, reported that ammonia prices have risen by more than 75 percent compared to last year.

Governments across Africa are currently operating in emergency mode to prevent more severe outcomes, such as famine or national bankruptcies. In Ethiopia, diesel is being prioritized for public transportation, while countries like Gambia are using tax money to subsidize fuel costs. Anja Berretta, an expert at the Konrad Adenauer Foundation, described the situation as critical. She noted that while African nations were able to use flexible financial approaches during previous crises, the current combination of high debt and rising inflation makes this situation much harder to manage.

Looking ahead, there is little sign that the blockade will end soon. While US officials have mentioned that a deal to reopen the strait is possible, Iranian officials have not shown a willingness to accept such an agreement. Even if the waterway were to open tomorrow, experts suggest it would take many months for global markets to stabilize and for logistics to return to normal. For now, nations and businesses around the world must continue to adjust to a new reality of higher costs and limited resources, while hoping for a peaceful resolution to the conflict.