Mar­i­ano Browne

The world is cur­rent­ly in tur­moil. Is there a cease­fire in the Mid­dle East, or isn’t there? If the war con­tin­ues, how much longer will it last, and how much more dam­age will be done to the en­er­gy in­fra­struc­ture and ul­ti­mate­ly to glob­al sup­ply chains? Fi­nan­cial mar­kets have been volatile, re­spond­ing pos­i­tive­ly to every glim­mer of peace, on­ly for those hopes to be dashed when more mis­siles land. What has been the im­pact of the war so far?

The Gulf states, which are par­ty to the con­flict (Bahrain, Iran, Iraq, Kuwait, Sau­di Ara­bia, Unit­ed Arab Emi­rates), have suf­fered re­al and last­ing dam­age to their in­fra­struc­ture and im­age that will take years to re­build. The full im­pact of the war on the in­ter­na­tion­al econ­o­my has not yet been felt, and the glob­al im­pact has been un­even. The war will have a mul­ti-chan­nel macro­eco­nom­ic im­pact. The im­pact can be seen through sev­er­al mech­a­nisms, which will in­ter­act: en­er­gy, in­fla­tion, trade, fi­nan­cial con­di­tions, and geopo­lit­i­cal re­struc­tur­ing. Some of these im­pacts are al­ready vis­i­ble.

The pri­ma­ry trans­mis­sion ef­fect is the en­er­gy shock, as the Gulf Re­gion is re­spon­si­ble for ap­prox­i­mate­ly 20% of glob­al oil sup­ply and a sim­i­lar share of glob­al nat­ur­al gas sup­ply. This has made en­er­gy prices more volatile, as re­flect­ed in dai­ly oil price move­ments on in­ter­na­tion­al mar­kets. The ef­fec­tive “clo­sure” of the Strait of Hor­muz has led to ship­ping dis­rup­tions, af­fect­ing ship­ping rates, in­sur­ance costs, and risk pre­mia, which will be passed on to con­sumers. The ship­ping dis­rup­tions have al­so caused de­lays as ships now have to be rout­ed, in­creas­ing costs and wreck­ing just-in-time de­liv­ery sched­ules.

The im­me­di­ate ef­fect is an in­crease in glob­al pro­duc­tion costs as en­er­gy is cru­cial for all com­mer­cial in­puts. This will neg­a­tive­ly af­fect the terms of trade for all en­er­gy-im­port­ing coun­tries and yield gains for all en­er­gy ex­porters out­side the Gulf. It is iron­ic that the largest ben­e­fi­cia­ry will be the Unit­ed States, the coun­try that start­ed this war in the Mid­dle East. It is now the world’s lead­ing ex­porter of nat­ur­al gas. Fur­ther, since 2024, the US has been a net ex­porter of crude oil and pe­tro­le­um prod­ucts, av­er­ag­ing over 10 mil­lion bar­rels per day (b/d) in to­tal pe­tro­le­um ex­ports.

The cu­mu­la­tive im­pact of these dis­rup­tions is to cause a surge in glob­al in­fla­tion af­ter a pe­ri­od of mod­er­a­tion. This is caus­ing a pol­i­cy dilem­ma for Cen­tral Banks every­where. The pol­i­cy re­sponse to ris­ing in­fla­tion is to in­crease in­ter­est rates, there­by weak­en­ing ef­fec­tive de­mand. The US an­nu­al in­fla­tion rate surged to an es­ti­mat­ed 3.3% in March 2026, up from 2.4% in Feb­ru­ary. This jump was dri­ven large­ly by en­er­gy costs and the ef­fects of the hos­til­i­ties in the Gulf. What mat­ters is the rate of in­crease. This sharp in­crease in in­fla­tion is a glob­al phe­nom­e­non.

Those coun­tries which are heav­i­ly de­pen­dent on the oil sup­ply from the Mid­dle East and that are with­out large buffer stocks, Bangladesh, In­dia, Pak­istan, the Philip­pines, Sri Lan­ka, and Thai­land, have felt an im­me­di­ate im­pact. Petrol prices have risen sharply, af­fect­ing trans­porta­tion and feed­ing in­to in­fla­tion­ary trends. The worst-af­fect­ed coun­tries have in­sti­tut­ed work-from-home poli­cies and re­duced the work­ing week. In Eu­rope, which is al­so de­pen­dent on the Mid­dle East for en­er­gy, the im­me­di­ate im­pact has been blunt­ed by sub­si­dies.

Apart from the im­pact of fu­el short­ages, there are oth­er knock-on ef­fects. Rice is ar­guably the most crit­i­cal sta­ple crop for glob­al food se­cu­ri­ty, act­ing as a pri­ma­ry caloric source for over half the world’s pop­u­la­tion (over 3.5 bil­lion peo­ple). It pro­vides rough­ly 20% of the world’s to­tal di­etary en­er­gy in­take and is cru­cial in Asia, where con­sump­tion is high­est.

In­dia, Bangladesh, and Thai­land are sig­nif­i­cant glob­al rice pro­duc­ers, with In­dia alone ac­count­ing for ap­prox­i­mate­ly 28% of glob­al out­put (2024–25) and of­ten rank­ing as the world’s largest pro­duc­er. All are fac­ing agri­cul­tur­al crises due to short­ages of fer­tilis­ers im­port­ed from the Gulf, which will ul­ti­mate­ly af­fect the world’s food sup­ply and its prices.

The price of avi­a­tion fu­el has dou­bled, lead­ing air­lines to ad­just routes, im­pose fu­el sur­charges and ad­just bag­gage fees. This is just the be­gin­ning. This has al­so af­fect­ed ship­ping rates and charges, there­by in­creas­ing im­port costs.

Guyana, Suri­name and Trinidad and To­ba­go are net en­er­gy ex­porters and will ben­e­fit from the price ef­fect of the dis­lo­ca­tion caused by the war, at least for the short term. But Cari­com is de­pen­dent on en­er­gy and food im­ports and has very lit­tle in the way of buffer stocks. Most Cari­com coun­tries de­pend on tourism as their pri­ma­ry source of for­eign ex­change, and it ac­counts for a sig­nif­i­cant share of GDP. Un­for­tu­nate­ly, tourism is al­so very sen­si­tive to price changes and glob­al eco­nom­ic in­sta­bil­i­ty. Most Cari­com coun­tries are al­so high­ly in­debt­ed and there­fore have lit­tle fis­cal space to buffer the in­fla­tion­ary im­pact with sub­si­dies.

Con­se­quent­ly, op­ti­mistic pro­jec­tions of growth for 2026-28 must be tem­pered by the fact that the full im­pact of the hos­til­i­ties in the Mid­dle East is yet to be felt. What is worse is that we do not know if those hos­til­i­ties have come to an end. All pub­lic pol­i­cy de­ci­sions must be in­formed by a cau­tious and pru­dent ap­proach.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of The UWI Arthur Lok Jack Glob­al School of Busi­ness