Prof M K Bhat
drmkb1963@gmail.com
Iran-America war has rattled the geopolitical and geo economic atmosphere of the world. The closure of Strait of Homruz by Iran is a big push to world economy towards Global recession. The economies of global south, Europe and Asia have started to feel the heat and the other nations of the world are going to feel its intensity quite soon. Protests against the continuation of war have erupted in many countries including America. Maritime insurance premiums have got a steep rise. NATO is likely to breakdown, European nations are in no mood to carry forward the orders of America, where as China Russia are gearing to be in the race for super powers in the multipolar world as American hegemony is fast losing its ground. Its image has got a big dent with the lacklustre approach of president Trump. The efforts to secure the strait of Hormuz have started under the leadership of UK. In certain countries near lockdown has started and others will follow.
In Philippines, government offices are now open for four days a week and bureaucrats have to limit the use of air conditioning. In Thailand, public workers have been told to use stairs instead of elevators. India is the world’s second-biggest importer of liquefied petroleum gas, which is used in cooking. Indian government is giving households priority over businesses as it allocates its limited supply and absorbing most of the price increases to keep costs low for poor families. LPG shortages have forced some eateries to shorten hours, close temporarily or drop dishes like curries and deep-fried snacks requiring a lot of energy. South Korea, dependent on energy imports, is restricting the use of cars by public employees and has reinstated fuel price caps that had been dropped in 1990s. Pakistan government has already raised state-controlled energy prices by 20 percent. Bangladesh government has closed all universities to conserve electricity, anticipating a power crisis.
Before analysing the impact of war on other countries it becomes important to analyse its impact on Arab countries and America as both comprise an indomitable part of world economy. Arab countries are a big source of world energy and America is the biggest economy of the world. The war is going to have a devastating impact on Arab countries, with millions expected to slide into poverty, according to the United Nations Development Programme (UNDP) report published on 31st March 2026, the gross domestic product (GDP) in the region was estimated to decline by approximately 3.7 to 6 percent after a month of war, equivalent to a contraction of $120bn to $194bn. Abdallah Al Dardari, UN assistant secretary-general and director of the UNDP Regional Bureau for Arab States, said that 3.7 million jobs will be lost and about four million more people in the region could fall below the poverty line, noting that the war had highlighted the “fragility in the Arab economy”. America on the other hand is an oil exporter, so its energy companies stand to benefit from higher prices. And LNG prices are lower in the U.S. than elsewhere because its export liquefaction facilities already are running at 100 percent capacity. The U.S. can’t export any more LNG than it already is, it is spending a whooping amount on war which has led to inflation in the country. As of March 2026, the conflict with Iran is costing the US roughly $1 billion to $2 billion per day, while Israel is spending approximately $3 billion per week. These expenses include significant military operations, high ammunition usage, and broader economic impacts, such as increased shipping and fuel costs.
The world at present has come to halt due to the disrupted energy production on the one hand and on the other, things got complicated by Iran’s blocking of shipping traffic through the Strait of Hormuz, resurgence of Houthi attacks in the Red Sea. Iran hit Qatar’s Ras Laffan natural gas terminal, which produces 20 percent of the world’s liquefied natural gas. The March 18 strike wiped out 17 percent of Qatar’s LNG export capacity and repairs will take up to five years, as per state-owned Qatar Energy. Gulf oil exporters like Kuwait and Iraq cut production because there was nowhere for their oil to go without access to the strait. The loss of 20 million barrels of oil a day delivered what the International Energy Agency calls the “largest supply disruption in the history of the global oil market.” Historically, oil price shocks like this have led to global recessions.
One-fifth of the world’s supply of both oil and liquified natural gas (LNG) usually flows through the strait of Homruz on its way to markets around the world. Besides energy, it has blocked merchandise goods that link major economies in the region to global supply chains. The aviation and logistics industries are severely impacted by fuel shortages. The energy crises is leading to inflation, closure of business units, shortage of fertilisers and unemployment due to industrial closure etc
The bigger jolt to the world economy has come with the disruption of fertilizer supply to food-producing countries of Africa and Asia. This may have a devastating impact on the global economy and human welfare than the oil price fluctuations. The food shortages can lead to widespread hunger and famine in the poorest parts of the developing world.
It is worthwhile to point out that Arab countries including Iran account for one third of urea and a quarter of ammonia exports. They are two key fertilisers used in agriculture. Producers in the region enjoy easy access to low-cost natural gas, the primary feedstock for nitrogen fertilizers. Up to 40 percent of world exports of nitrogen fertilizer pass through the Strait of Hormuz. Now that the passage is blocked, urea prices are up 50 percent since the war and ammonia 20 percent. Big agricultural producer Brazil is especially vulnerable because it gets 85 percent of its fertilizer from imports. Egypt, a big fertilizer producer itself, needs natural gas to make the stuff and production falters when it can’t get enough. Higher fertilizer prices are likely to make food more expensive and farmers without its use will get lower yields. The low food supplies will be harsh for poor countries. The war has also disrupted world supplies of helium, a byproduct of natural gas and a key input in chipmaking, rockets and medical imaging. It will influence public health badly.
Lastly, Middle East is a big destination for migrant workers. Many economies in Asia and Africa are dependent on remittances sent back by migrants working in Saudi Arabia, Qatar, UAE, and the Gulf-as an important source of livelihoods for families remaining back home, as well as a source of foreign exchange for their economies. The remittance-to-GDP ratio in both Nepal and the Philippines exceeds 25 percent. Qatar and other Persian Gulf countries are the most popular destinations for Nepali migrant workers. In turn, more than three-quarters of people living in Qatar and the UAE come from large developing countries like India, Pakistan, Bangladesh, and Egypt. Remittances to India from Arab countries comprise a major portion of total remittances to India.
(The author is Professor Emeritus (M.A.I.T) Guru Gobind Singh Indraprastha University, Delhi)
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