Military actions by the United States and Israel have sparked a spillover of conflict in the Middle East, with the situation escalating rapidly. This could trigger a series of crises beyond just an oil price shock.
On February 28, while many interpreted US-Iran negotiations as a signal of eased relations, the US and Israel launched a large-scale joint military strike against Iran. Iran's Supreme Leader Ayatollah Khamenei was killed in the attack that morning. The Pentagon named the operation "Epic Fury," while Israel dubbed its parallel action "Roaring Lion." Iran retaliated with missile and drone attacks on Israel. As of the time of writing, the conflict has persisted for nearly two weeks, spread to at least 12 countries, and exceeded the scale of limited strikes aimed at deterrence, weakening, or targeted elimination. The economic and political shockwaves are now global.
Since taking office, this military action against Iran, conducted jointly with Israel, marks the seventh time the US has attacked a foreign nation. From the outset, the operation carried the distinct characteristics of "decapitation" and "regime change." The US administration explicitly stated that the goal was to overthrow the Iranian regime, with Israel simultaneously targeting Iran's highest leadership core. Early in the war, the US President indicated that military action against Iran, "a major country," might take about four weeks to complete, "or less," calling this the "current administration's anticipated timeline." However, the President and administration officials have since made inconsistent statements regarding the war's timetable and objectives, at times suggesting the goal was to achieve the Iranian government's "unconditional surrender" and continue fighting if necessary, and at other times claiming the war had already achieved its objective of destroying Iran's military capabilities.
As the conflict rapidly escalates, its intensity and scale have far exceeded the usual boundaries of Middle Eastern crises, quickly evolving into a systemic crisis affecting regime stability, regional security, global energy transportation, and international market expectations.
A Multi-Dimensional War Another front has emerged. US medical technology giant Stryker recently suffered a massive cyberattack, causing global system outages and leaving tens of thousands of employees unable to access internal networks. Stryker's stock fell about 3% on Wednesday following the attack, which is suspected to be linked to Iran. A hacker group named Handala, aligned with Iran's stance, claimed responsibility on Telegram, stating they had wiped 200,000 systems, stolen 50TB of data, and attacked office networks in 79 countries. They called the operation retaliation for the US strikes on Iran.
Another weapon in Iran's arsenal is drones. Despite suffering large-scale airstrikes, Iran retained the capability to launch ballistic missiles and drones at US bases across the Middle East, Israel, and major cities in US Gulf partner nations. Drones have become Iran's most crucial asymmetric warfare tool. The FBI had previously warned California law enforcement that Iran might retaliate with drone attacks on the US West Coast. US network ABC noted that the FBI warned in late February: "We recently obtained information indicating that as of early February 2026, Iran intended, once the US attacked Iran, to launch drones from a vessel to carry out raids on the US mainland, specifically targeting certain objectives in California."
The distance from Iran to the California coast exceeds 10,000 kilometers. The US President had stated he was not worried about Iran-backed forces attacking the US homeland. California Governor Gavin Newsom said on Wednesday that state officials were aware of the potential drone threat, noting at a press conference that the drone issue had been a focus of his attention and that task forces had been established specifically to address these concerns.
In retaliation for the large-scale US and Israeli airstrikes, Iran launched numerous missiles and drones at Israel and Persian Gulf neighbors hosting US military facilities. Iran's mass-produced Shahed series drones, costing only tens of thousands of dollars each, can perform long-range strike missions. Ukrainian President Volodymyr Zelenskyy recently stated that 11 countries, including Iran's neighbors, European nations, and the US, had sought his country's assistance.
The US military stated it would deploy a new AI-powered weapon to intercept the low-cost attack drones Iran uses extensively. Its production cost could be reduced to about one-four-hundredth that of intercepting missiles. The US is deploying a small drone named "Merops," capable of identifying enemy attack drones and approaching the target. When within about 1.6 kilometers, the drone uses AI to lock on and detonate at close range to destroy the target.
Reports indicate the Iranian government has laid about a dozen naval mines in the Strait of Hormuz. Mining the strait would severely impact energy exports. This tactic was used extensively during the "Tanker War" in the 1980s between Iran and Iraq, prompting the US to dispatch convoys to ensure shipping safety. During the 1991 Gulf War, Iraq laid 1,300 mines, heavily damaging two US Navy vessels, including the cruiser USS Princeton. The US subsequently spent two years clearing mines from the northern Persian Gulf.
On Wednesday, March 11, the US President stated that the US had struck "28 Iranian minelaying vessels" and called the action against Iran a "short-distance operation," saying its progress was "far exceeding expectations." However, as of now, the US Navy has not provided convoy escorts for merchant ships in the strait. Previously, French President Emmanuel Macron stated he had not "confirmed from cooperating intelligence agencies or French intelligence itself" that Iran was using sea mines in the Strait of Hormuz, believing "if Iran uses mines, that would be a major choice." Analysis predicts Iran may possess 5,000 to 6,000 naval mines, particularly floating mines, which are difficult to intercept.
Security experts widely believe Iran's primary threats to shipping come from asymmetric means, including anti-ship missiles, drones, swarms of fast attack craft, explosive unmanned surface vessels, and mines.
The Irreplaceable Strait of Hormuz Even as some within the US administration attempt to reassure the public that the US will not be drawn into another long-term Middle East war, Iran is not an ordinary regional country. It is one of the most dangerous geopolitical nodes in the global energy and shipping system. Iran's uniqueness stems not only from its missiles, drones, Revolutionary Guards, and proxy network across the Middle East, but also from its strategic position controlling the Strait of Hormuz, the choke point of the world's energy lifeline.
The Strait of Hormuz is a global shipping artery. Before the conflict, an average of 138 ships passed through daily. The strait's narrowest point, about 34 kilometers wide between Iran and Oman, handles approximately 20 million barrels of oil per day and about one-fifth of global liquefied natural gas shipments, making it a highly strategic target during regional conflicts.
The strait is now effectively blocked, causing oil prices to surpass $100 per barrel for the first time since the 2022 Russia-Ukraine conflict.
Since the US and Israeli military strike on Iran on February 28, the strait's passage status has been closely watched, gripping global attention. While Venezuela can stir regional politics, Iran, by controlling the Strait of Hormuz, connects to the core vulnerabilities of global energy and shipping. It is the world's most typical "narrow waterway systemic bottleneck": highly efficient in peacetime, but once conflict erupts, even without complete closure, mere harassment, attacks on ships, turnarounds, delays, and insurance premium hikes are enough to create a near-"semi-blockade" effect at the market level.
The dense concentration of US military bases around the Strait of Hormuz involves the export security of Gulf oil producers, Israel's strategic anxieties, the coordination costs of the US alliance system, and global financial market fears of supply disruption.
The US-Israel war against Iran has caused severe disruption to shipping in the Strait of Hormuz, obstructing about 20% of global oil and significant LNG supplies. Multiple analysts indicated that disruptions in the Strait of Hormuz could persist, and countries with strategic petroleum reserves might act to release oil. Unless signals of rapid de-escalation emerge, oil prices will rise substantially. During Asian trading hours on Thursday, March 12, US crude oil prices trended upwards, trading near $95.25 per barrel with an intraday gain of about 9.2%.
On March 9, according to Bloomberg-compiled ship-tracking data, this critical global energy channel had been "near stagnant" for the seventh consecutive day. In the past 24 hours, only one Iran-linked bulk carrier had exited the Persian Gulf, with no vessels entering from the opposite direction. The US military claimed that on March 10, it destroyed multiple Iranian naval vessels near the Strait of Hormuz, including 16 minelayers. The US military posted unverified videos on social media platform X showing attacks on Iranian naval minelayers, with the strikes occurring mostly on stationary vessels.
Iran has long threatened to mine the Strait of Hormuz if attacked militarily. Research firm Kepler stated that several refineries in the region had shut down or reduced output, partly due to sabotage. This means reduced capacity to convert crude into fuels like gasoline, diesel, and jet fuel. Since the conflict began, very few ships have successfully passed through, while others attempting the crossing have sometimes been hit and set ablaze. According to British maritime agency UKMTO, 17 ships have been attacked in the Persian Gulf.
Shipping through the Strait of Hormuz is nearly paralyzed. Despite repeated public statements by the US President that the US is ready to escort vessels, the US Navy has been unable to fulfill this promise, deepening the shipping crisis. The G7 held an emergency online summit to coordinate a response to the Strait of Hormuz blockade crisis. French President Emmanuel Macron, opening the summit on the 11th, called on G7 members to coordinate actions to prompt the swift resumption of navigation through the strait. Meanwhile, the International Energy Agency's 32 member states unanimously agreed to release 400 million barrels of strategic petroleum reserves to alleviate global energy supply pressures.
Beyond political statements, the practical navigation difficulties in the Strait of Hormuz remain far from resolved. Informed sources revealed on the 10th that since the outbreak of the US-Israel-Iran war, merchant tankers anchored near the strait have almost daily requested US military escorts, but were refused due to excessive risk. This contrasts sharply with the US President's repeated public assurances that "the US is always ready to escort." Analysis indicates that even if an escort plan is eventually implemented, in the most optimistic scenario, the number of tankers passing through the Strait of Hormuz daily would be less than 10% of normal levels, meaning pressure on the global energy supply chain is unlikely to ease substantially in the short term.
Oil prices are fluctuating violently due to the US-Iran situation. Panic sentiment drove Brent crude to spike to nearly $120 on Monday, March 9, a four-year high; it then retreated rapidly after the US President signaled that "the war will end soon." Currently, market concerns about supply disruptions have not dissipated. JPMorgan estimates that if the strait blockade persists for two weeks, the Gulf region would see a reduction of about 3.8 million barrels of crude supply per day, equivalent to over 3% of global production.
Although the Middle East has more than just the Strait of Hormuz as an "oil and gas throat." Over the years, Gulf states have built bypass infrastructure forming an emergency diversion network. This can redirect some volume directly to the Red Sea or the Gulf of Oman for loading, transforming an extreme "complete cutoff" scenario into a manageable shock of "congestion, delays, and premiums."
The key is that these pipelines do not equate to replacing the Strait of Hormuz. The real bottleneck lies not only in the pipelines themselves but also in whether storage tanks at terminals, loading windows, vessel turnover, insurance, and financial settlements can be scaled up simultaneously. Once the market enters a stressed state, nominal capacity quickly translates into a much smaller "effective export capacity."
Global crude oil market daily consumption is approximately 100 million barrels. An energy senior vice president and head of geopolitical analysis stated: "Alternative infrastructure in the Middle East can be used to bypass oil transport routes through the Strait of Hormuz, but the net impact remains an effective loss of crude supply of about 8 to 10 million barrels per day."
Saudi Arabia's East-West Pipeline (Petroline), 746 miles long, runs from Abqaiq across Saudi Arabia to the Red Sea. But if Saudi Arabia uses the Red Sea route, it becomes more dependent on shipping security through the Red Sea-Bab el-Mandeb direction. The UAE has the most typical bypass tool, transporting crude from Abu Dhabi's onshore processing/collection points directly to the Fujairah export terminal on the Gulf of Oman coast, with an outlet beyond the Strait of Hormuz. The UAE using Fujairah means Fujairah and its offshore waters will become more congested, more conspicuous, and more likely to become the "price anchor" for market panic.
Furthermore, in Iraq, its northern export pipeline through Turkey's Ceyhan allows Iraq, particularly northern Iraq, to export without relying on the Persian Gulf, theoretically bypassing the Strait of Hormuz. Recent reports mentioned restored and renewed export arrangements for this route. However, its strategic reliability is highly dependent on the stability of political and commercial terms among Iraq, the Kurdistan Region, and Turkey; during geopolitical shocks, this route is often the first to be "politicized," making it the bypass option with the poorest political resilience.
The Iran Project Director at the International Crisis Group told media that by "driving up insurance costs and global energy prices," Iran can pressure the US and its Gulf oil-producing allies.
Global Cost Crisis With oil prices oscillating at high levels, the energy price shock is transmitting to the global economy through four main channels: rising energy and food prices eroding real incomes; disruptions to supply chains and trade flows; tightening financial conditions; and uncertainty leading to decreased business and consumer confidence.
Data released by the US Bureau of Labor Statistics on Wednesday, March 11, showed the core CPI (excluding food and energy) rose 0.2% month-on-month in February, with the year-on-year growth rate holding at 2.5%, the lowest level in nearly five years. The US Head of Economic Research at a major ratings agency stated that while the CPI report might seem reassuring at first glance, it could overlook deeper issues. CPI might be underestimated and still lags behind the PCE inflation gauge, which the central bank focuses on most. For policymakers, the real focus is core PCE, which remains near 3% and could strengthen in the coming months. If the Iran conflict pushes up energy prices and spills over into core inflation, inflation remains a real risk.
Wall Street investors and the central bank are both in an unprecedented state of uncertainty, with market direction increasingly dependent on crude oil price movements and the latest developments in the Strait of Hormuz. Additionally, the prolonged conflict has triggered anti-war sentiment domestically in the US. Polls show US public support for military action against Iran is at a historic low. Nearly 60% of Americans reportedly oppose or strongly oppose the administration's use of force against Iran. Protests and rallies have been held in over 50 cities demanding the administration cease military intervention in the Middle East.
For the US President, voters' perception of the economy will directly impact the midterm elections this November. The President and his party have recently begun signaling a desire for a quick resolution. Facing midterm election pressure, domestic governance fatigue, volatile public opinion, and social division, there is a strong need for an event significant enough to redefine the national conversation. Military action against Iran is not just a foreign operation; it is a bet to quickly shift US public focus from cost-of-living pressures and governance challenges to another victory and a demonstration of leadership. It also helps consolidate intra-party differences and reinforce an image of a strong leader willing to win in a dangerous world.
However, choosing Iran for this war is a high-wire act. The administration needs a war that creates a sense of victory without significantly raising living costs. Iran is precisely the least suitable country for such political maneuvering. If supply issues in the Strait of Hormuz lead to sustained oil price increases, the war could quickly become a household cost issue for Americans, which ultimately determines midterm election outcomes.
The Chief Economist at a major financial services group stated that the current situation remains highly unstable and uncertain. The most effective way to assess potential economic impact is to consider the worst-case scenario: a months-long disruption of trade through the Strait of Hormuz, keeping Brent crude prices persistently above $100 per barrel. If oil prices remain above $100 for months, as after the Russia-Ukraine situation, real GDP growth in 2026 is projected to slow by about 0.4 percentage points, and headline CPI inflation could rise by about 0.5 percentage points.
A former central bank chair and former treasury secretary recently stated that depending on how long the Iran conflict affects oil markets, US economic growth will be impacted, and inflationary pressures will increase, complicating the central bank's decision-making. The central bank is caught in a "stagflation dilemma": cutting rates to stimulate growth would exacerbate inflation, while tightening to control prices would hamper economic recovery. Markets are already pricing in a "higher for longer" path.
This shock differs from the energy price surge following the 2022 Russia-Ukraine conflict: the initial economic conditions are weaker, private sector transfer payments have decreased, pent-up demand has been released, and income growth in the labor market has slowed. This makes the global economy more susceptible to a "stagflation" scenario—stubborn inflation plus slowing growth. Simultaneously, the war causes a surge in military spending, with ammunition consumption, naval escorts, energy subsidies, and high oil prices pushing up inflation-indexed expenditures, further widening the US fiscal deficit. The deficit for the 2026 fiscal year could increase by $200-$400 billion. The entire US Treasury yield curve has shifted upwards, with long-term fiscal risk premiums rising. If the central bank maintains high interest rates, debt interest payments will worsen, and credit rating risks loom. The safe-haven attribute of US Treasuries has temporarily failed, and selling pressure may continue.
Rising crude oil prices are rapidly transforming this regional military conflict into a systemic shock to global inflation and economic growth. The administration's past pattern of initially proposing强硬 policies with a high-pressure stance, only to retreat under real-world pressure, has somewhat undermined the market's ability to price the persistence of its deterrence. As the conflict's spillover rapidly expands, the situation is no longer a short-term disturbance easily calmed by one or two policy tone adjustments. Instead, it has created accumulating chain reactions at the real supply level. The administration has already allowed Iran to discern its price底线—namely, soaring energy prices.
The energy shock has begun to transmit comprehensively along the energy trade chain to surrounding Middle Eastern countries, Asia-Pacific, Europe, and other major crude buyers. Asia imports most of its energy from the Middle East; few regions are as sensitive to reduced oil and gas supplies from there. With crude prices soaring above $100 per barrel, Asian governments are forced to take increasingly extreme measures, on one hand to protect consumers from sharp price hikes, and on the other to restrict energy use to prevent shortages in this seemingly endless conflict.
For Middle Eastern oil producers, the issue is not just price volatility, but whether shipments can be loaded on time, whether insurance and shipping costs are bearable, and whether export cash flow can be maintained. Once key routes are blocked, even temporarily, it immediately constricts these countries' core source of fiscal revenue, putting immense pressure on fiscal systems already highly dependent on oil exports. For buyer nations, the risk rapidly escalates from "price increase" to "physical shortage"—the market worries not just about expensive oil, but about being unable to buy enough oil at all.
The blow from crude supply disruptions to the real economy often doesn't stop upstream but amplifies through the refining system across the entire industrial chain and consumption end. Refineries, squeezed by both raw material shortages and soaring procurement costs, are forced to reduce operating rates, leading to synchronous contraction in downstream products like refined fuels, chemical feedstocks, and aviation fuel. The result is not a single commodity price increase but a repricing of the entire industrial society's operating costs: rising logistics costs, increased manufacturing inputs, heightened pressure on agriculture and transportation sectors, ultimately pushing up broader end-user prices. This oil price shock is not just a sectoral fluctuation in energy but is evolving into broader imported inflation.
More dangerously, after absolute prices surge persistently, the economic system can gradually slide from "cost-push inflation" into "stagflationary suppression." On one hand, rising energy prices continue to push inflation higher, forcing central banks into a more constrained position between cutting rates and stabilizing growth. On the other hand, corporate profits and household purchasing power are continuously eroded by high oil prices, leading to明显的 negative feedback on the demand side. Companies reduce investment, households cut non-essential consumption, and industrial activity marginally slows. This means prices are still rising, but growth is declining. The combination most feared by markets is precisely this "inflation hasn't receded, but demand has already cooled," because it drastically narrows policy space and pushes the global economy faster towards stagflation.
Precisely because of this, the nature of this conflict is no longer merely a geopolitical confrontation between a few involved parties. Under the multiple pressures of high oil prices, supply disruptions, fiscal deterioration, inflation spillovers, and slowing growth, it is gradually evolving into a global risk event affecting the core interests of more countries. When the conflict begins to threaten the energy security of major buyers, the fiscal stability of oil producers, and the normal operation of the global trade system, the willingness and necessity for external forces to intervene will significantly increase.