US-Iran war: economic costs already start to stack up

Al Majalla lays out three possible scenarios for how the conflict unfolds, along with their associated costs

Al Majalla

US-Iran war: economic costs already start to stack up

last update on 01 Mar 2026

With the outbreak of the US and Israeli war on Iran, the global economy braces for a stress test shaped by energy security and the resilience of supply chains. At the centre of this picture is the Strait of Hormuz, the world’s energy lifeline. Roughly one-fifth of global oil consumption passes through it each day, along with roughly a third of seaborne liquefied natural gas trade.

At this point, the danger is no longer theoretical. Any real disruption, or even a limited disturbance to shipping, could drive oil prices sharply upward within days, raise freight, insurance and security costs, and rekindle an inflationary wave in economies that have yet to complete their recovery.

Three scenarios

Iran retaliated after being hit by a string of devastating blows that observers called the most severe since the birth of the Islamic Republic in 1979. What happens next is anyone's guess, but there are a few different possible scenarios.

The least costly scenario is that the Iranian regime collapses from within. Especially ahead of midterm elections, US President Donald Trump will not want a long war that could push oil prices to the $100-per-barrel mark (it is already nearing $80). That could have a reverberating effect on the global economy, sending inflation sky high and exacerbating American debt, estimated at $36tn.

The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (OPEC+), are considering a major output boost at a 1 March meeting, potentially surpassing the slated 411,000 barrels per day (bbl/d) increase. Reuters reports that the group is moving to stabilise the market, with Saudi Arabia and the United Arab Emirates (UAE) already ramping up exports after the US weekend strikes on Iran.

The most-costly scenario is all-out regional war, with Houthis, Hezbollah and Iraqi militias joining in the battle, and Iran closing the Strait of Hormuz

The second scenario is a long, drawn-out war between the US and Israel against Iran, and Tehran striking back at American and Israeli assets across the region. This prolonged instability would have dire economic consequences for all parties involved and would also affect regional states, as tourism could drop significantly or flatline altogether.

The third and most-costly scenario—hinted at in some retaliatory statements after the Supreme Leader's killing—is all-out regional war, with Houthis, Hezbollah and Iraqi militias joining in the battle, and Iran closing the Strait of Hormuz, through which 20% of global oil supplies pass. The Houthis could also move to restrict commercial ships in the Bab al-Mandab Strait and the Gulf of Aden.

The result would be a dramatic surge in energy prices, shocks to global supply chains, currency volatility, steep falls in American and European stock markets, and rising insurance costs for shipping. Marine insurers have already begun raising premiums for ships transiting the Arabian Gulf and the Strait of Hormuz by as much as 50%.

Getty Images — An Iranian navy warship during a military exercise in the Gulf, near the strategic Strait of Hormuz in southern Iran.

Dire economic state

As one of the world's most heavily-sanctioned countries, Iran is labouring under high inflation, estimated at 40%, up from about 32.5% in 2024, according to an International Monetary Fund report that also anticipated a sharp fall in the rial's exchange rate. In rural areas, Iranians are also facing an acute water crisis in a country of farmland and mountains.

The World Bank expected economic growth to contract by 2.8% this year, following a 1.7% decline in 2025. It said the reduction in Iran's oil exports due to US sanctions is among the direct causes of economic hardship and hard-currency shortages.

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