Mar 08, 2026

I recently heard that the ongoing conflict involving Iran is causing major disruptions in the global energy markets, particularly affecting the flow of oil and liquefied natural gas (LNG) from the Gulf region. With around 20% of global LNG exports coming from Qatar and a significant portion of crude oil exports coming from Iraq, Kuwait, Saudi Arabia, and the UAE, the conflict has led to a near halt in these shipments. Attacks on infrastructure and the danger of navigating tankers through the Strait of Hormuz have made transportation unsafe, leading to storage facilities filling up and some producers cutting back output.

Because of these supply disruptions, crude oil prices have surged roughly 50% since the start of the year, with about a 25% jump since the conflict began. Prices for natural gas and refined products like jet fuel and diesel have roughly doubled recently. This is partly because refined products are harder to store and also due to China reducing its exports of refined fuel. The supply squeeze is already driving up fertilizer costs, which could threaten spring planting in the northern hemisphere and push food prices higher. Beyond agriculture, industries relying on oil and gas derivatives—such as chemicals, plastics, and pharmaceuticals—are also likely to feel the impact.

This situation adds to a series of shocks the global economy has faced in recent years, following the pandemic and Russia’s war in Ukraine. For the U.S., this Iran conflict could be seen as the fifth major shock in six years, including policy uncertainties and immigration shifts. The repeated nature of these shocks is causing concern that inflation expectations might become entrenched, which would make inflation more persistent and harder to control over the long term.

Federal Reserve officials have voiced worries about inflation expectations becoming unanchored amid these ongoing supply shocks. While they acknowledge they cannot directly control the immediate price spikes in oil and energy, they are focused on preventing wage-price spirals that could embed inflation into the economy. The complexity and interconnectedness of global supply chains mean that price increases in one sector can quickly ripple through many others, complicating the Fed’s efforts to manage inflation through monetary policy.

This energy disruption is occurring at a time when inflation in the U.S. was already above the Federal Reserve’s 2% target, with limited signs of easing before the conflict escalated. The critical question now is how long these disruptions will persist and whether they will shift long-term inflation expectations. A lasting shift could force policymakers to adopt more aggressive measures, which might have broader consequences for economic growth and financial markets.

Stay Well!