If the war drags on and energy facilities continue to be attacked, it is hard to overestimate how devastating its effects could be on the global economy. Head of the International Energy Agency he said The Financial Times on Friday said the war posed the “biggest ever” threat to global energy supplies and said financial markets were underestimating the impact of the conflict.
Johnston points out that the amount of oil and gas that can be taken off the table is roughly the same amount of demand that fell during the initial global shutdown in 2020 due to the pandemic.
“If the strait doesn’t reopen, people say, ‘Is it a recession?’ I say, ‘No, it’s a depression.’ It’s going to be so, so, so, so bad,” he says. “We’re talking about a Covid-level loss of demand, no cars on the road and no planes in the sky, but no pandemic.”
Wald emphasizes that the US is not at risk of losing oil and gas supplies. But Americans would soon feel the effects of the war, most directly at the pump.
“Most of the price of a gallon of gasoline is determined by the price of a barrel of crude oil,” he says. High gasoline prices will also raise freight transportation prices across the country: “This phenomenon translates into higher prices at the grocery store,” Wald says.
The war affects more than just energy: the conflict has blocked the world’s most important supplies of goods, from petrochemical production to materials used in semiconductor production. Prices for various types of fertilizers that are in high demand as the U.S. spring planting season begins have skyrocketed as key supplies have been unable to get through from the Gulf. Some airlines have started price increases and flight cuts due to high fuel prices.
Both Wald and Johnston say much of the uncertainty markets are facing right now is due to inconsistent messaging from the White House. It is unclear how long the Trump administration expects this war to last, whether there is any exit plan, if any what exactly are the goals of the war. The administration has already introduced some emergency measures aimed at easing the price of war on American consumers, from temporarily waiving the Jones Act to considering removal of sanctions for Iranian oil. (After Thursday’s meeting with oil producers, the administration reiterated that it would not implement the U.S. export ban.)
But Trump also said Thursday that if Iran takes further retaliatory action against Qatar, the United States will take further action.
“ISRAEL WILL NO MORE ATTACKS on this extremely significant and valuable South Pars Field unless Iran unwisely decides to attack a very innocent one, in this case Qatar” – President he wrote in a post on Truth Social. “In such an event, the United States of America, with or without Israel’s assistance or consent, will massively blow up the entire South Pars gas field with a force and power the likes of which Iran has never seen or witnessed before.”
“I never thought we would get so involved in it,” says Johnston. “I don’t think Trump ever thought we would be so deeply involved in this.”