Key Points
Unable to prevail militarily in the current conflict, Iran is seeking to trigger a global energy crisis designed to generate international pressure on the United States to expedite the end of the war and increase the Ayatollah regime’s chances of survival. To that end, Tehran is targeting energy infrastructure across the Gulf and constraining freedom of navigation in the Strait of Hormuz, through which roughly one-fifth of global oil supply passes.
Iran’s actions are imposing direct economic costs on the Gulf states, which are absorbing substantial losses in energy export revenues. At the same time, most have been able to reroute at least part of their exports through alternative overland channels. The crisis is also directly hitting the Gulf’s energy-importing markets, particularly in Asia, but also in Europe. These countries are drawing on strategic reserves and diversifying supply via alternative providers.
At the global level, the crisis in the Gulf has driven a sharp rise in energy prices, intensified inflationary pressures, and disrupted supply chains and international trade. It has also exposed divisions between the United States and its Western partners, many of which have refrained from deploying forces to address the problem, while fueling significant domestic political pressure in the United States—driven in part by rising fuel prices—that could push the administration toward ending the war.
In an effort to stabilize markets and buy additional time for its campaign against Iran, the United States is working to restore secure maritime transit through the Strait of Hormuz, advancing the release of strategic oil reserves, temporarily easing sanctions on producers in other arenas, and adopting conciliatory rhetoric that frames the current crisis (and the war) as temporally constrained.
Alongside the significant challenges it creates, the Gulf energy crisis also generates clear opportunities for alternative producers. In the oil sector, Russia has seized the opportunity to exploit supply disruptions and increase oil exports to the Gulf states’ export markets, including those that had avoided Russian supply due to Western sanctions, while benefiting from rising oil prices. In the gas sector, U.S. energy companies are increasing LNG exports (as an alternative to Qatari gas) and boosting revenues, enabling further investment in new infrastructure and strengthening their position in global markets.
In any case, the linkage between resolving the threat to freedom of navigation in the Strait of Hormuz and the future of the Islamist regime in Iran is becoming increasingly clear. These are effectively interconnected dynamics: the most effective way to reopen the Strait to free navigation and remove the threat to Gulf oil and gas exporters is regime change in Tehran, while one of the principal means of advancing such a change is eliminating the regime’s ability to threaten maritime transit in the Gulf—and, through it, global oil and gas prices. The strategic reality is that maritime security in the Strait has become a central issue in the war. Given the operational difficulty of securing traffic through this vital waterway, and in light of Western reluctance to commit forces to address the problem, the challenge now falls squarely on President Trump. For now, he is seeking to mitigate the impact of a closure of the Strait on global oil markets while preparing for a potential military operation to reopen it; however, as time passes and the Iranian regime continues to weaken and lose strategic capabilities while remaining in power, pressure will grow to decide whether to go ahead with such an operation.
Iran Expands the War into the Energy Sector
Alongside the intense fighting currently underway inside Iran, the conflict is spilling into an additional arena: the global energy sector. Unable to prevail militarily, Iran is deploying the strategic lever it has long reserved for a decisive moment—energy. It is using this tool to exert pressure on global energy markets in order to compel affected actors to press President Trump to bring the war to an end, through the following measures:
A. Restricting maritime passage through the Strait of Hormuz: At the outset of the fighting, Iran’s Islamic Revolutionary Guard Corps (IRGC) announced the closure of the Strait, warning it would act against vessels attempting to transit it without their approval. The move led to a sharp reduction in tanker and commercial shipping traffic in the area. At present, only a small number of vessels pass through the Strait each day, mostly carrying Iranian oil to China. These vessels are mostly from Iran’s “shadow fleet,”[1]
This is an extreme step by Iran, one it had reserved for an “apocalyptic” scenario given its potentially dramatic impact on global markets. The Strait of Hormuz is one of the most critical strategic chokepoints in the global energy system, serving as a primary maritime export route for major Gulf oil producers, including Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates. As of February 2026, an average of approximately 20 million barrels per day (mb/d) of oil and petroleum products transited the Strait, accounting for some 20 percent of global oil consumption and roughly a quarter of seaborne oil trade. Disruption of flows through the Strait therefore materially constrains global supply, increases price volatility, and undermines the stability of energy markets and the broader global economy. Blocking maritime routes through Hormuz also disrupts industrial supply chains that underpin a significant share of global production.
B. Attacks on energy infrastructure in neighboring producer states. Iran has stated that it considers any U.S. presence in neighboring countries a legitimate target, and that it is targeting that presence rather than the states themselves. At the same time, alongside strikes on U.S. military assets across the Gulf, Iran has expanded its operations to include energy infrastructure in those countries. These attacks, primarily carried out using missiles and unmanned aerial systems, have targeted oil and gas facilities across the region. Among the targets were gas facilities operated by QatarEnergy in Qatar, energy installations belonging to Aramco in Saudi Arabia, the port and oil hub of Fujairah in the United Arab Emirates (one of the world’s major ship refueling and marine fuel trading centers), and a refinery operated by Bapco Energies in Bahrain. These strikes have disrupted oil and gas production and exports across the region and heightened concerns over a broader impact on global energy supply.
Who Is Affected by Iran’s Actions—and How?
1. Targeted Gulf States
Iran’s actions are imposing direct economic costs across the Gulf. Damage to energy infrastructure has forced partial shutdowns in production and led to a temporary decline in oil and gas exports, while supply chain disruptions have constrained the ability of producers to meet international contractual obligations. The result is a significant hit to the annual revenues of both companies and governments in the region. According to Kpler estimates, Gulf states have lost roughly $15 billion in energy revenues since the start of the war and have been forced to cut oil production by around 10 million barrels per day (mb/d)—about 10 percent of global demand (IEA, March 11). JPMorgan estimates that this figure could rise to approximately 12 mb/d in the coming week.
Saudi Arabia (accounting for roughly 10 percent of global oil demand): Aramco is estimated to have reduced production by around 20 percent (to approximately 8 mb/d) and to have lost about $4.5 billion in revenues since the start of the war, after being forced to shut down parts of its production and export capacity at facilities struck by Iranian attacks, including the massive Shaybah oil field. In response, Saudi Arabia is redirecting part of its oil exports to the Red Sea via the East–West pipeline to the port of Yanbu (see map). This, however, is only a partial solution and cannot fully replace Saudi exports through the Strait of Hormuz, estimated at around 6 mb/d by the IEA. The constraint lies in limited loading capacity available at the Yanbu export terminal (approximately 2–3 mb/d), even though the pipeline itself has higher throughput capacity (around 7 mb/d).
Iraq (around 4 percent of global oil demand): While Iranian strikes did not focus on Iraqi oil facilities but rather on U.S. military assets on its territory, the closure of the Strait of Hormuz has disrupted Iraqi oil exports through the Persian Gulf. Estimates suggest that Iraq’s oil production has fallen by 60–70 percent, with exports through the Gulf nearly halted and only a limited volume moving overland via Turkey (through the port of Ceyhan). This represents a severe blow to Iraq’s economy, which relies on oil for roughly 90 percent of its revenues.
The United Arab Emirates (around 3 percent of global oil demand): The UAE has suffered multiple strikes on its oil infrastructure, primarily at the port of Fujairah.[2] These attacks, carried out by Iran with drones and rockets, have caused fires and disrupted tanker loading operations. As a result, the UAE has had to rely more heavily on its overland pipeline linking Abu Dhabi’s oil fields to Fujairah, but the pipeline’s limited capacity has constrained export volumes and reduced revenues. Some companies operating in the sector have declared force majeure[3] and suspended supply contracts. Combined with the closure of the Strait of Hormuz, these factors have led to a roughly 25 percent drop in UAE oil production and a decline of about one-third in exports (to approximately 1.63 mb/d), resulting in losses of billions of dollars.
Qatar (around 20 percent of global gas supply): QatarEnergy has also declared force majeure on LNG
deliveries and has almost entirely halted gas production. It has warned that a return to normal output will take weeks to months. In the meantime, shipments have gradually resumed, but at significantly reduced levels of around 20–30 percent of pre-war export volumes (approximately 1.5 million tons of LNG per week). The economic damage from disrupted gas exports is estimated at $0.9–1.2 billion per week.
Kuwait and Bahrain: The Kuwait Petroleum Corporation has also declared force majeure on crude oil sales, as has Bapco in Bahrain, which has done so at the country’s sole refinery.
2. Energy-Importing Markets of the Gulf States
The largest destination markets for energy exports from the Persian Gulf (including Iran) are in Asia, which makes them the most exposed to the current supply disruptions. . For example, , India imports roughly 70 percent of its oil from the Gulf, China about 50 percent, and Japan approximately 80 percent. Disruptions in Gulf energy supply have therefore driven price increases and temporarily reduced fuel availability across Asian markets. In response, these countries are expanding the use of strategic reserves and seeking alternative sources of oil and LNG from suppliers such as Russia, the United States, and Australia. The objective is to maintain continuity of supply, limit damage to domestic industry, and enhance strategic flexibility in the face of uncertainty in the Persian Gulf.
Most Asian countries appear to hold oil reserves sufficient for at least three months. Japan, for example, has stated that it holds reserves for approximately nine months. India, which maintains smaller reserves, has increased oil purchases from Russia(discussed below). As a result, these countries are likely able to absorb supply disruptions in the immediate to medium term, although they will have to withstand higher prices.
China’s conduct in the current crisis merits particular attention, given the close relationship between Beijing and Tehran. In 2025, approximately 90 percent of Iranian oil exports were directed to China, while around 11 percent of China’s oil imports originated in Iran. Reports indicate that Iran continues to export oil to China as usual, while China engaged Iran to ensure the safe passage of its commercial and energy vessels through the Strait of Hormuz. It has also been reported that Iran is considering allowing limited tanker transit through the Strait, if transactions are conducted in yuan. Preferential access to Gulf energy supplies could provide China with a relative short-term advantage over other importers dependent on the region.
European countries are also directly affected by the Gulf crisis, having increased their energy imports from the region in recent years, particularly after reducing purchases from Russia following its 2022 invasion of Ukraine. Qatar, in particular, has become a key LNG supplier to the European market, and disruptions to its exports pose a significant challenge to Europe’s energy security, especially for Italy, France, Belgium, and Poland, which rely the most on Qatari gas. Since the start of the war in Iran, natural gas prices in Europe have risen by approximately 30–50 percent, driven by disruptions in LNG supply from Qatar and concerns over potential shortages. In response, European countries are moving to diversify supply by increasing LNG imports from the United States and Africa, expanding LNG import infrastructure, and drawing on strategic gas reserves. These measures form part of a broader European Union strategy to reduce vulnerability to geopolitical disruptions in energy markets and to accelerate the transition to alternative energy sources.
3. The global economy
The ongoing security crisis in the Persian Gulf and the risks to shipping through the Strait of Hormuz have generated a significant shock to the global economy, transmitted primarily through energy markets, international trade, and financial markets. First, the crisis has driven a sharp increase in energy prices, reflecting concerns over supply disruptions and a tightening of global supply due to interruptions in Gulf export flows—particularly from major producers Saudi Arabia (oil) and Qatar (gas). Brent crude prices have risen above $110 per barrel (an increase of roughly 25 percent), while gas prices have climbed even more sharply, by approximately 30–45 percent.
Second, higher energy prices are generating global inflationary pressure and weighing on economic growth. Economists estimate that a 10 percent increase in oil prices can raise global inflation by approximately 0.4 percentage points and reduce global output by around 0.2 percentage points. Higher fuel and energy costs feed through into production, transportation, and agriculture, resulting in broad-based price increases across goods and services. Current projections suggest that in economies such as the United States, Canada, and Australia, inflation could reach 4 percent or higher—well above central bank targets (around 2 percent)—if the Gulf crisis persists and energy prices remain elevated.
Third, the crisis is disrupting global supply chains and trade flows. Attacks on shipping and damage to infrastructure in the Gulf have slowed tanker traffic, increased shipping and insurance costs, and contributed to heightened volatility in financial markets. Together, these dynamics are increasing global economic uncertainty and raising the risk of a broader slowdown in global growth if the crisis endures.
4. U.S. public opinion as a potential constraint on the Trump administration’s decision-making
The ongoing war in Iran is generating significant political pressure within U.S. public opinion, driven in part by rising energy prices and concerns over direct economic consequences. Gasoline prices in the United States have increased by approximately 7–8 percent within a matter of weeks, placing additional strain on consumers and fueling perceptions of economic instability. Recent polling indicates declining public support for prolonged U.S. military involvement and a growing preference for diplomatic solutions or more limited military engagement.
This dynamic may act as a constraint on the administration, particularly in the run-up to the November 2026 midterm elections, where the president wants to avoid the risk of losing the Republican majority in the House or the Senate. As a result, if the Gulf energy crisis persists, the administration may adopt a more cautious approach to the conflict with Iran and seek diplomatic off-ramps to limit the domestic economic impact on American consumers.
U.S. Efforts to Mitigate the Impact of the War on the Energy Sector
Given the broad effects of the war on the global economy as outlined above, and the international pressure they are generating, the United States is concentrating efforts to mitigate the impact of the fighting on the energy sector in order to preserve additional leeway in the war against Iran.
- Efforts to restore the security of commercial transit through the Strait of Hormuz: Following Iran’s threat to close the Strait of Hormuz, the U.S. administration launched (March 6) a war-risk insurance program worth approximately $20 billion for U.S. tankers transiting the Strait, with the aim of supporting global oil and gas flows and restoring confidence in maritime traffic. In addition, under instructions issued by President Trump, the option of naval escort by the U.S. Navy was also put forward. In practice, however, such escorts have not yet been implemented, due to limited military resources, a congested and dangerous maritime environment, high security risks including missile threats and naval mines, and international political considerations that constrain any expansion of military activity in the area. As a result, despite the financial and insurance measures that have been introduced, large-scale shipping traffic has not yet returned to the Strait, and the immediate effect on energy flows remains limited. At the same time, it was reported (March 13) that the Pentagon is considering sending additional warships to the Middle East in response to the deteriorating security situation in the Strait of Hormuz, specifically to ensure the safe passage of oil tankers through the waterway. The move has not yet been officially approved by the Pentagon. There have also been reports that President Trump is planning to take control of the Strait to ensure safe passage.
- Release of strategic oil reserves: The International Energy Agency (IEA) announced (March 11) the release of strategic energy reserves held by member states, totaling approximately 400 million barrels. The purpose is to curb the sharp rise in oil prices, ease the temporary supply shortfall, and stabilize global energy prices in the wake of supply disruptions caused by the war with Iran. The United States is the principal contributor to the coordinated move, having announced (March 12) a phased release of 172 million barrels from its strategic reserves over roughly 120 days. Analysts note that a volume of 400 million barrels could cover about one month of global oil consumption. This is therefore only a temporary solution, intended to ease pressure on oil prices and prevent an immediate shortage, but not to resolve a prolonged supply crisis if disruptions from the Gulf continue over time.
- Temporary U.S. energy sanctions relief in other arenas: In an effort to prevent a global energy crisis and stabilize the energy market, the U.S. administration has ordered a temporary exemption from sanctions imposed on Russia’s energy sector through April 11, 2026, enabling the import of Russian oil currently “stranded at sea.” In addition, the U.S. Treasury has expanded sanctions relief for Venezuela, including general licenses for the import of oil products and natural gas, as well as eased restrictions on investment in the country’s fertilizer and electricity sectors, in an effort to mitigate rising prices in the United States, including for raw materials.
- Rhetoric that frames the crisis as time-limited: In order to calm markets and global public opinion, the administration has adopted official messaging that seeks to present the conflict as an operation with a defined objective, and to emphasize that the military campaign is limited in duration and is not expected to lead to prolonged involvement. The administration’s reassuring message that the crisis is only temporary, expressed through terms such as “controlled operation,” “limited duration,” and “temporary effects,” is intended to project restraint and stability in order to calm markets, public opinion, and international partners.
Actors Benefiting from the Current Situation
While Gulf producers are experiencing a crisis in energy production and exports, the disruption is creating a rare opportunity for global energy producers with spare production capacity, not dependent on the Strait of Hormuz, to capture the Gulf States’ market share.
Russia: In the energy domain, Moscow appears to be one of the primary beneficiaries in of the war in Iran. It retains spare production capacity in both oil and gas, largely as a result of Western sanctions that have constrained its access to markets. As supply disruptions from the Persian Gulf intensify, Russia is moving to fill the gap by increasing energy exports (and revenues), including to markets that had previously refrained from purchasing Russian energy due to sanctions. President Vladimir Putin stated (March 9) that Russia is prepared to serve as an alternative supplier of oil and gas lost from the Gulf as a result of the war, including to European markets, should they choose to purchase from Moscow. Indeed, in recent weeks, demand for Russian oil has increased in countries such as China and India, with reports indicating that the price of Russian crude has risen to a premium of approximately $2–3 per barrel above Brent. Following the temporary U.S. sanctions waiver on Russian energy purchases, India has increased imports of Russian oil after having reduced them in recent months under U.S. pressure, and reports (March 13) indicate that like-minded countries such as Japan are also considering renewed purchases. Higher oil prices are increasing Russia’s budget revenues by approximately $150 million per day (FT, March 12), with oil revenues rising by 14 percent month-over-month compared to February (CREA, March 12).
United States: U.S. energy companies, particularly in LNG and shale, are also benefiting from higher energy prices and increased demand for American energy exports as an alternative to disrupted Gulf supply. Estimates suggest that, driven by increased demand from Europe and South Asia, U.S. LNG exports could rise by approximately 26 percent in March 2026 compared to March 2025, with energy company revenues potentially increasing by around 30 percent in 2026. Beyond profitability gains, U.S. energy firms are using elevated prices to invest in new infrastructure, including production facilities, thereby expanding output capacity and strengthening their position in global markets amid price volatility and supply disruptions.
Venezuela: The Gulf crisis is also creating economic opportunities for Venezuela, primarily through additional temporary easing of U.S. sanctions on oil and gas exports. These measures allow Venezuela to increase energy exports, particularly to Europe and North American markets, and to capitalize on higher global prices to recover revenues that have been constrained in recent years by sanctions and adverse market conditions. Venezuelan crude can also serve as a substitute for Iranian oil, given the similar characteristics of the two products.
Conclusion
In the current war, the trajectory of the conflict is being shaped not only by developments on the battlefield, but also by energy prices. The energy sector may act as a constraining force on further escalation, as Iran’s deliberate actions threaten the stability of global oil and gas markets and key supply routes in the Gulf. Concerns over damage to energy infrastructure and freedom of navigation in the Strait of Hormuz, through which roughly 20 percent of global energy transits, are driving up prices and increasing economic pressure on states involved in the conflict and their partners. As a result, governments and economic actors with a stake in stability may exert diplomatic pressure to limit the scope of the fighting and prevent prolonged escalation.
At the same time, the global energy market appears, for now, capable of absorbing the shock in the short term, due to several structural balancing mechanisms. First, some major producers not dependent on the Strait of Hormuz—particularly the United States and Russia—retain spare production capacity. Second, many countries maintain strategic reserves of oil and gas that help cushion temporary supply disruptions. In addition, the energy market has become more diversified and flexible in recent years, both geographically and logistically, with the expansion of LNG trade and the ability to redirect shipments across regions. Together, these factors enable the market to absorb part of the shock in the short term, even amid heightened tensions in the Gulf.
Moreover, U.S. efforts to mitigate the impact of the crisis on the energy sector, as outlined above, appear to be generating a degree of stabilization in the market, even if only partial and temporary. Bank of America projected (March 15) that oil prices could moderate to an annual average of around $77 by the end of the year, a decline of approximately 24 percent from current levels.
Against this evolving backdrop, the key question is which dynamic will overcome: the global energy market’s ability to adapt to supply disruptions in the Persian Gulf, or the political and economic resilience of Iran’s clerical regime under sustained military pressure.
In any event, the linkage between restoring freedom of navigation in the Strait of Hormuz and the future of Iran’s Islamist regime is becoming increasingly clear. The two are, in effect, interconnected dynamics: the most effective way to ensure the reopening of the Strait and remove the threat to Gulf energy exporters is regime change in Tehran, while one of the principal means of advancing such change is the removal of the threat Iran poses to maritime transit, and, by extension, to global oil and gas prices. Both sides have created a reality in which the security of shipping through the Strait has become a central issue in the war. Given the operational difficulty of securing this vital maritime corridor, and the reluctance of Western states to commit practical resources to the task, the challenge now rests with President Trump. For the time being, he is attempting to mitigate the impact of the Strait’s closure on global oil markets while preparing for a potential military operation to reopen it. However, as time passes—and as the Iranian regime continues to weaken strategically while remaining in power—the pressure to decide whether to undertake such an operation will intensify.
[1] “Shadow fleet” refers to a network of oil tankers and commercial vessels operating outside international oversight and regulatory frameworks in order to circumvent sanctions or trade restrictions. The “shadow fleet” is estimated to comprise hundreds of tankers that transport a significant share of sanctioned oil globally, primarily on behalf of Iran and Russia, and until recently Venezuela.
[2] Fujairah is one of the world’s largest hubs for ship refueling and marine fuel trading. Through this port, the United Arab Emirates can export oil without reliance on the Strait of Hormuz.
[3] Force majeure is a legal and economic term referring to an external, unforeseen, or unavoidable event that prevents a party from fulfilling its contractual obligations, such as the delivery of goods or services.
JISS Policy Papers are published through the generosity of the Greg Rosshandler Family.
