The following is a guest editorial courtesy of Carolane de Palmas, Markets Analyst at Retail FX and CFDs broker ActivTrades.

In our previous analysis, we examined why oil prices have continued to climb despite the IEA’s record emergency reserve release, and what Iran’s warning of $200 oil reveals about the fragility of global energy supply. This second part turns to the consequences. With the Strait of Hormuz effectively closed, markets pricing in a prolonged disruption, and analysts warning of price levels that would break historical records, everyone wonders how much further it could go, and what that means for economies and households around the world.

How High Could Oil Prices Really Go?

To put the current situation in context, Brent crude — the global benchmark against which most oil contracts are priced — has never in its history reached $200 a barrel. Its all-time peak was $147 per barrel, recorded in July 2008 during a period of surging demand and geopolitical anxiety that now looks modest by comparison. The fact that an Iranian official has publicly named $200 as a target price is therefore not simply provocative rhetoric: it could describe a level that would represent an entirely new frontier for global energy markets, with consequences that would ripple far beyond the pump.

Prices have already broken through $119 a barrel this week, the highest level since Russia launched its full-scale invasion of Ukraine in February 2022. That conflict pushed Brent to around $139 before supply chains adjusted and sanctions redirected flows. Analysts now warn that a continued closure of the Strait of Hormuz could push prices toward $150 a barrel — which would surpass the 2008 record and enter territory that no modern economy has had to absorb. The strait carries not only a fifth of global seaborne crude oil and liquified natural gas, but also a third of the world’s most widely traded fertiliser, meaning the inflationary pressure would extend well beyond energy bills into food supply chains and broader consumer prices.

The scale of the current disruption is already without modern precedent. Goldman Sachs has assessed that Iran’s effective blockade of the waterway has delivered an impact on global oil supply roughly seventeen times larger than the peak disruption caused by Russian production losses following the Ukraine invasion (the very shock that sent Brent surging toward $139). That comparison alone illustrates why analysts, economists and policymakers are speaking openly about the risk of a renewed inflation shock, and why living standards in import-dependent economies could come under serious pressure if the situation persists.

What happens next depends primarily on two variables: how long the strait remains effectively closed, and whether major exporters in the region can identify credible alternative routes to bring their oil to market. Neither question has a reassuring answer at present. Diverting meaningful volumes away from the Hormuz corridor requires infrastructure, logistics and time that most producers in the Gulf simply do not have. For as long as that bottleneck holds, the gap between what the IEA can release from reserves and what the world actually needs will continue to widen — and markets will continue to price that gap accordingly.

What Could Higher Oil Prices Mean For The Economy?

Global financial markets — particularly those in South Korea, Japan, and Europe — are grappling with intense volatility and aggressive selling pressure. As the conflict unfolds, its broader economic implications are emerging within an environment of profound uncertainty.

The surge in crude prices is arriving at a particularly fragile moment. Central banks across the developed world had spent the past two years carefully unwinding the most aggressive interest rate tightening cycle in decades — a cycle that was itself a response to the inflationary shock triggered by Russia’s invasion of Ukraine. Further cuts had been widely anticipated in 2026. The Iran conflict has placed those expectations in serious doubt, with many economists now warning that central banks could be forced into the opposite course, raising borrowing costs again just as households and businesses were beginning to find some relief.

The transmission mechanism from oil prices to consumer inflation is by now well understood. Fuel costs for motorists are already climbing. Household energy bills are likely to follow. Higher input costs for businesses will move through global supply chains and be passed on to consumers in the price of goods and services. The sectors most exposed are those where energy forms a substantial share of operating costs — airlines, for instance, typically spend between 20 and 40% of their operating budgets on fuel, meaning that flights will become more expensive and some routes could face cancellation if supply tightens further. In Asia, concern is mounting that energy shortages could constrain semiconductor manufacturing, a sector whose output underpins everything from cars to smartphones, with Taiwan — a critical production hub — heavily dependent on energy imports. In the United States, some analysts have raised the additional concern that surging energy costs could slow the build-out of artificial intelligence infrastructure, one of the primary engines of recent American economic growth.

The worry extends beyond energy bills alone. The Middle East is also a significant source of aluminium, sulphur, and fertiliser ingredients including urea, all of which feed into food production and industrial supply chains. As commodity prices in those categories begin to rise alongside oil, the inflationary pressure will broaden well beyond what consumers pay at the pump. Food prices, manufacturing costs, and the price of holidays abroad could all move higher in ways that are difficult to contain once they take hold.

What makes the current moment particularly “dangerous” is the accumulated exhaustion of households and businesses that have already absorbed years of sharp price increases, first from the pandemic, then from the Ukraine shock. Many are already stretched. Economists warn that a renewed inflationary burst on top of that accumulated pressure would damage consumer demand and suppress economic activity in a way that cuts deeper than either of the previous two shocks. Fears of stagflation — the combination of stagnating growth and rising prices that proved so damaging in the 1970s and early 1980s — are mounting across financial markets. Ian Stewart, chief economist at Deloitte in the UK, noted that talk of recession has returned, pointing out that surging energy prices stemming from conflict in the Middle East were a central factor in western recessions in 1973, 1979, and 1990, and that the energy shock from the Ukraine war was sufficient to collapse Europe’s growth rate in 2023.

The risks are not evenly distributed. Analysts broadly agree that Asia and Europe face the greatest exposure, given that both regions are heavily reliant on energy imports. The United States, as a major domestic producer of oil and gas, is comparatively insulated, though not immune. European countries are net energy importers and have limited capacity to absorb another costly support scheme for households and businesses — governments across the continent deployed expensive emergency interventions four years ago, and borrowing levels are already stretched. Any new programmes would test the appetite of bond markets that remain sensitive to deteriorating fiscal positions.

Seven countries have signalled readiness to release emergency reserves in addition to the IEA coordinated action, and the United States retains some flexibility given its expanded domestic production in recent years. But the structural vulnerability of the global economy to a prolonged closure of the Strait of Hormuz is not something that reserve releases or policy interventions can fully offset. If the disruption continues, higher borrowing costs, weakened investment, and the erosion of consumer spending power will compound one another — and the countries least able to absorb that combination are likely to feel the consequences first.

Sources : BBC, CNBC, Forbes, Reuters, The Guardian, The Wall Street Journal, Yahoo Finance

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