Global Economic Shockwaves from the US–Israel Attack on Iran

Mohammad Nur Rianto Al Arif
(Professor at UIN Syarif Hidayatullah)

On February 28, a military attack involving the United States and Israel against Iran took place. This was not merely a regional event but one with global economic consequences. Financial markets were affected, energy prices surged, and world leaders spoke not only about security but also about economic stability.

In a deeply interconnected modern economy, a single explosion in the Middle East can ripple into rising food prices in Asia, inflation in Europe, and stock market volatility in the United States. This event is a reminder that globalization is not only about trade integration but also about risk integration.

This article attempts to analyze the impact of the event—how the conflict may affect energy prices, global inflation, financial markets, supply chains, and the outlook for global economic growth in the medium and long term. To understand its impact, we need to return to the global energy map.

Iran is not a peripheral country in the global energy system. It holds one of the largest oil and gas reserves in the world. Despite years of international sanctions, Iran remains a key player in energy supply, especially for Asian countries.

Even more strategic is its geographic position. Iran borders the Strait of Hormuz, a narrow sea lane that serves as a main artery for global oil trade. Around one-fifth to one-third of the world’s seaborne oil passes through this strait. This means that any threat to the stability of this area is not just regional but a threat to the global energy system.

Oil markets react quickly to risk, not just reality. Even without physical disruption to supply, expectations of potential disruption are enough to push prices higher. This condition is known as the geopolitical risk premium—the price the world pays for uncertainty.

Almost every conflict in the Middle East is followed by a surge in oil prices. The same has happened this time. In a short period, global crude oil prices rose sharply. Investors and market players are considering two scenarios: direct disruption to Iran’s production and a broader escalation that could affect distribution through the Strait of Hormuz.

Rising oil prices are not just numbers on commodity exchange screens—they are fuel for nearly all modern economic activity. Land, sea, and air transportation depend on fossil energy. The chemical and manufacturing industries rely on petroleum derivatives as raw materials. Even agriculture depends heavily on energy-based fertilizers and distribution.

When energy prices rise, production costs increase. Companies face a difficult choice: absorb the higher costs or pass them on to consumers. In many cases, most of these costs are passed on in the form of higher prices for goods and services. This leads to inflationary pressure. Energy inflation is regressive because it disproportionately burdens low-income groups, as a larger share of their spending goes to basic needs and transportation.

For developing countries that still rely on energy imports, the impact can be much heavier: widening trade deficits, currency pressure, and rising energy subsidies.

The world has not fully recovered from post-pandemic inflation and global supply chain disruptions. In recent years, central banks in many countries have struggled to reduce inflation through high interest rate policies. The surge in energy prices due to conflict places central banks in a dilemma.

On one hand, rising inflation calls for tighter monetary policy. On the other, excessive tightening risks slowing already fragile economic growth.

If central banks raise interest rates to curb energy-driven inflation, borrowing costs will increase. Private investment may slow, and household consumption may decline. The risk of economic slowdown—even recession—becomes more real. But if central banks hold back, inflation may become entrenched and threaten long-term stability.

This dilemma shows how geopolitical conflict can disrupt the architecture of global economic policy. Global financial markets are highly sensitive to uncertainty. In times of conflict, investors tend to reduce exposure to risky assets and move toward safe haven assets such as gold and government bonds from developed countries.

This creates several consequences. First, stock indices in many countries may come under pressure, especially in sectors sensitive to energy costs such as airlines, logistics, and heavy manufacturing.

Second, capital outflows from developing countries may increase, causing currency depreciation and additional pressure on macroeconomic stability. A strengthening US dollar in such situations often becomes a double-edged sword. For the United States, it reflects confidence in its assets. But for developing countries with dollar-denominated debt, a stronger dollar means higher repayment burdens.

In a highly connected financial world, sentiment can move faster than oil tankers. A single statement from a military official, one intelligence report, or one additional incident can trigger major volatility within minutes.

Conflict in the Middle East affects not only energy but also global logistics. Airspace closures or restrictions in certain regions impact international flights. Airlines must reroute, increase travel time, and bear higher fuel costs. In the maritime sector, shipping companies face rising insurance premiums due to increased security risks.

If risks around the Strait of Hormuz increase, ships may choose longer routes, adding time and shipping costs. In the modern global economy, time is cost. Delays in delivering industrial components can disrupt production in other countries. Just-in-time production models, which rely on efficiency and minimal inventory, are highly vulnerable to logistical disruptions.

The pandemic has already shown how costly supply chain disruptions can be. Geopolitical conflict can extend these vulnerabilities. If the conflict is short and contained, its impact may be limited to short-term volatility. However, if escalation continues, the effects could spread to global economic growth.

Sustained high energy prices tend to suppress consumption and investment. Businesses delay expansion due to uncertainty. Consumers cut spending as basic goods become more expensive. Under these conditions, global GDP growth may slow. Net energy-importing countries, especially in Asia and Europe, are at greater risk of pressure as their trade balances worsen due to more expensive energy imports.

Meanwhile, energy-exporting countries may gain short-term benefits from higher prices, but those gains can erode if the conflict expands regional instability. Conflict may also accelerate global economic fragmentation. Countries may become more cautious in building supply dependence on certain regions.

The trend of supply chain diversification and reshoring production, which has emerged in recent years, could strengthen further.

Interestingly, every energy crisis often becomes a catalyst for accelerating the energy transition. When oil prices surge and supply risks increase, countries are pushed to seek more stable and renewable alternatives. Investment in solar, wind, and energy storage technologies may gain new momentum. Energy-importing countries will see diversification as a national security issue, not just an environmental one.

However, the energy transition does not happen overnight. In the short term, dependence on fossil fuels remains high. This means price shocks remain a real risk to global economic stability.

For many developing countries, this conflict presents a double challenge. On one side, they face inflation and currency pressure due to rising energy prices and capital outflows. On the other, their fiscal space is often limited to provide subsidies or economic stimulus.

Countries like Indonesia, which is still a net oil importer, may feel the pressure through rising fuel prices and distribution costs. Governments face a difficult choice between raising domestic prices or increasing subsidies that burden the budget.

In a global context, crises like this widen the gap between developed and developing countries. Developed countries have large foreign exchange reserves and access to cheaper financing, while developing countries are more vulnerable to external shocks.

The global economy cannot be separated from diplomacy. Efforts to de-escalate the conflict are crucial—not only for political stability, but also for economic stability.

Major countries have an interest in preventing escalation, as the impact on global growth and inflation could be significant. International organizations and multilateral forums are likely to play a role in easing tensions. However, in an increasingly multipolar world, global consensus is not always easy to achieve. Strategic interests, military alliances, and geopolitical rivalries can hinder quick solutions.

The US–Israel attack on Iran on February 28 shows one fundamental truth: the global economy is highly sensitive to geopolitical shocks, especially when they involve strategic regions like the Middle East.

The impact spreads from oil prices to inflation, from stock markets to exchange rates, from logistics to economic growth. In the short term, the world faces volatility and uncertainty. In the medium term, the direction of the conflict will determine whether the impact remains temporary or becomes a trigger for a deeper global slowdown.

This event is a reminder that global economic stability is shaped not only by growth figures and interest rate policies but also by political stability and international security. In the era of globalization, a bullet fired in one region can echo as inflation, recession, or crisis in another.

As long as energy remains the lifeblood of modern civilization, the Middle East will continue to be the center of global economic gravity—where every spark of conflict has the potential to become a global economic storm.

This article was published in KOMPAS on Sunday, March 1, 2026.