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War in the Middle East recalibrates global energy markets

9 April 2026

 

The US and Israel’s war with Iran, and the disruption it is causing to oil and gas shipping, are having a deep impact on global energy markets and will have lasting effects on how decisions are made about energy production and consumption.

In March, the director of the Paris-based International Energy Agency, Fatih Birol, said the world was “facing the greatest global energy security threat in history”, eclipsing even the 1973 oil crisis triggered by Opec’s oil embargo against countries that supported Israel during the Yom Kippur War.

Iran’s effective closure of the Strait of Hormuz has highlighted the fragility of the Middle East oil and gas supply chain, and will incentivise import-dependent economies to pursue greater energy security.

There are already signs around the world that this is taking place in a range of ways, including developing domestic fossil fuel reserves, accelerating nuclear projects, and investing in renewables and battery storage.

At the same time, high oil and gas prices are spurring fossil fuel producers to increase investment in boosting output and protecting export routes, as they seek to maximise profits amid reduced global supplies.

The oil price shocks of the 1970s shaped key oil and gas partnerships between Saudi Arabia and the US, and helped drive the development of strategic petroleum reserves, energy-efficiency policies and broader efforts to diversify energy supply.

In a similar way, the current crisis is dramatically reshaping the global energy landscape, potentially eroding some of the key agreements that emerged in the 1970s and accelerating a new wave of diversification.

Unparalleled crisis

The scale of the current energy crisis is unprecedented, with global markets losing 11 million barrels a day (b/d) of oil supply due to the effective closure of the Strait of Hormuz.

On top of this, 20% of the world’s LNG production cannot be shipped.

This combined drop in available oil and gas is far larger than during the price shocks of the 1970s.

In the 1973 crisis, the world lost around 5 million b/d of oil; the same was true of the second shock in 1979, following the Iranian Revolution.

Deepening the current crisis, significant damage is being inflicted on oil and gas infrastructure across the Middle East, which is likely to take years to repair.

Refineries have been attacked across the region, including in Iran, Kuwait, Bahrain and Saudi Arabia. There have also been multiple strikes on storage facilities, oil fields, gas processing facilities and shipping terminals.

While the price shocks of the 1970s led to a global recession and had sweeping, long-term consequences for businesses and consumers worldwide, the latest crisis has the potential to be even more severe and is already causing major disruption in energy markets.

Advisory firm Oxford Economics has forecast that, if the war is prolonged and the Strait of Hormuz remains closed for between three and six months, the result would be a global recession and world GDP growth would slow to 1.4% in 2026.

Demand destruction

Experts say the war is already driving oil and gas “demand destruction”, as governments, companies and households respond to price spikes and supply-chain fragility by reducing reliance on hydrocarbon imports.

Decisions being made now to reorient away from oil and gas could have a lasting impact on future import demand worldwide.

Even though it is less than two months since the war started, choices are already being made that could reduce demand for oil and gas in the years ahead.

In Vietnam, conglomerate Vingroup has asked the government to allow it to replace a planned $6bn liquefied natural gas (LNG) power project – which would have been the country’s largest – with a renewable energy project, citing surging fuel prices linked to the Middle East conflict.

Similarly, in New Zealand, plans to develop a new LNG import terminal on the country’s North Island are becoming increasingly uncertain. On 30 March, Prime Minister Christopher Luxon said the government would only approve the project if the business case stacked up, and it has been reported that officials are considering replacing it with a large hydroelectric project.

Christopher Doleman, a gas specialist at the Institute for Energy Economics and Financial Analysis (Ieefa), said: “There were existing concerns about the high price of LNG and potential volatility and these concerns have increased significantly since the war began – leading several developers to consider other options, which in some cases include renewables projects.”

At a consumer level, demand destruction is also taking place, as high prices for oil- and gas-linked products drive increased sales of solar panels and electric vehicles.

In March, Octopus Energy, the UK’s largest supplier of domestic electricity and gas, said it had seen a sharp rise in solar panel sales during the price shock, with purchases up 54%.

Also in the UK, March set a monthly record for electric car sales, with 137,000 vehicles sold — a 14% increase on the same period in 2025. Rising electric vehicle sales were also reported in the US and the EU.

French used-car dealer Aramisauto said the share of its total sales accounted for by electric vehicles rose from 6.5% to 12.7% within three weeks of the start of the war. In Germany, the share of electric car search queries on the platform mobile.de rose from 12% to 36%, with dealers reporting 66% more enquiries for used electric cars than in February.

Some Asian countries are also seeing a shift away from gas for cooking. In India, amid an ongoing liquefied petroleum gas shortage, electric stoves have seen a surge in demand, with some retailers reporting they sold three times their usual monthly volume in just a few days.

The global shift away from fossil fuels — both in major power and import projects and at the consumer level — is likely to have significant long-term implications for energy demand.

That would fundamentally alter demand forecasts for Middle East producers and could weigh on revenues in the years ahead.

What we are seeing in the global energy sector is that there are very clear beneficiaries of the ongoing conflict … exporters that aren’t reliant on the Strait of Hormuz can take advantage of high oil prices to post profits and sanction new projects
Slava Kiryushin, HFW

Bolstered prospects

While many Middle East oil and gas producers are seeing their exports severely restricted due to attacks on infrastructure and the disruption of shipments via the Strait of Hormuz, the war is bolstering the prospects of producers in other regions.

High prices are delivering windfall profits, while investment is flowing towards projects perceived as less exposed to future attacks or a renewed blockade of the strait.

Over time, these forces could contribute to a global divergence: Middle East producers could miss market-share targets, while suppliers elsewhere outperform.

Commenting on the implications of the conflict, Slava Kiryushin, an international oil and gas lawyer and partner at London-headquartered law firm HFW, said: “There has already been a massive impact from this conflict on global energy markets. Producers in the GCC have been impacted more than others.

“The most important factors right now are the damage caused to infrastructure from strikes on energy facilities and how quickly those can be remedied,” he said. “Even if this war ends tomorrow, many will remain concerned about political tensions in the region and the potential for future disruptions.

“What we are seeing in the global energy sector is that there are very clear beneficiaries of the ongoing conflict … exporters that aren’t reliant on the Strait of Hormuz can take advantage of high oil prices to post profits and sanction new projects.”

As revenues fall, repair costs rise and projects stall for national oil and gas companies in Saudi Arabia, Qatar, Iraq, Kuwait and Bahrain, companies active in regions including the US, Australia, Russia and Africa are seeing significant benefits.

Despite Ukrainian strikes on key Russian oil infrastructure, Moscow has reported surging oil revenues as the war in Iran drives up global crude prices and boosts demand for Russian crude.

In March, Ukraine’s Kyiv School of Economics (KSE) estimated Russia was earning about $760m a day from oil exports, benefitting from high prices and US sanctions waivers.

Even if the conflict ends in the coming weeks, Russia’s annual oil and gas export revenues are projected to reach $218.5bn this year, up 63% from a scenario in which Middle East energy supplies remain uninterrupted, KSE said. That would amount to an additional $84bn in windfall revenue.

US oil companies are also seeing bumper profits and higher share prices. Even as the broader US stock market has moved lower, ExxonMobil and Chevron shares have risen by more than 20% since the start of the year.

Market research firm Rystad Energy has estimated that US oil producers could earn an additional $63bn in profit this year due to elevated prices.

As producers outside the Middle East record large profits and ramp up output, some analysts argue the region’s future standing in global energy markets could be undermined.

Commenting on the outlook for Qatari LNG, Doleman said: “Over the long term, the ongoing conflict could weaken Qatar’s bargaining position when the country is negotiating long-term gas contracts due to perceived risk associated with using the Strait of Hormuz.

“Exports from other suppliers such as producers in the US or Australia could be viewed as more reliable and this could lead to the removal of resale restrictions and other elements that customers in Asia have been pushing back against for some time now.”

Structural changes

While uncertainty remains over how the war will end and how extensive future disruptions to energy supplies may be, it is increasingly likely the crisis will bring structural changes to global energy flows.

There have already been shifts in energy relationships, with clients of GCC oil and gas producers seeking alternative suppliers and sanctions on Iranian and Russian oil being temporarily eased.

While many of the arrangements made in the short period since the war began are likely to be temporary, some could become more durable over time.

Iran has made the removal of sanctions one of its key demands to end the conflict with the US and Israel.

With oil prices remaining high, many countries hit by rising energy costs would welcome the extension of sanctions waivers beyond existing deadlines, to keep crude supplies to global markets as high as possible.

The scale and permanence of these changes will depend on how quickly the conflict can be resolved, and what assurances can be put in place to prevent it flaring up again.

If the conflict is resolved quickly, it is possible that oil and gas sectors in Iraq and the GCC could see a significant rebound, returning towards pre-war operations.

Prior to the war, low production costs in countries such as Saudi Arabia, Kuwait and Iraq made them among the most profitable exporters in the world, and analysts believe that cost advantage will support a recovery once the Strait of Hormuz reopens.

“Though a lot of damage is being done, Middle East producers still have the advantage of some of the world’s cheapest and easiest-to-produce oil and gas,” Doleman said. “This means they are likely to retain their clients and a functioning business model once the Strait of Hormuz reopens.”

However, if the conflict continues for an extended period, the prospect of a swift recovery would diminish and more dramatic structural changes to the global oil and gas industry would become more likely.

That, in turn, could make the Middle East’s future role in global energy markets significantly smaller than previously forecast.

https://image.digitalinsightresearch.in/uploads/NewsArticle/16317884/main.png
Wil Crisp

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