Since February 28, 2026 the world has been waking each day to news of the war in West Asia, struggling to make sense of oil prices rising and falling. The collapse of peace talks over the weekend, followed by the imposition of a US naval blockade, sharply escalated the crisis and sent oil markets into disarray. Brent crude surged toward $104 on Monday, April 13, before retreating on expectations of a potential diplomatic thaw. Market sentiment improved after renewed signals that talks between the United States and Iran could resume, easing fears of prolonged supply disruptions, with Brent trading at $95.2 on April 15.The war involving the US, Israel, and Iran has turned the Strait of Hormuz into the epicentre of global economic anxiety. Tehran has employed its geographic leverage, slashing vessel traffic to less than 10% of the daily average of 138 ships. This has disrupted the transit of nearly 15 million barrels of crude and condensates, alongside 20% of global LNG supplies, reverberating across the entire energy value chain from upstream production to midstream transport, downstream refining, and petrochemicals.While Donald Trump has indicated that talks with Iran could resume this week, the blockade continues. No ceasefire has been reached in Lebanon, where Israeli forces and Hezbollah continue to trade attacks in South Lebanon, and Iran has escalated strikes against its neighbours. As the West Asia war enters its second month, the world should be under no illusion that the consequences of this crisis for energy markets will be short-lived. What is unfolding is not simply volatility but a structural shock, embedding fragility into the global economy and reshaping the future of energy security.The current crisis is the direct consequence of poor strategic choices made by the Trump administration, whose tariff policies in 2025 provoked China into weaponising its rare earths dominance. While that confrontation ended after Washington rolled back duties, Iran’s far more intractable use of the Strait of Hormuz has created a disruption that is proving harder to bargain.It is reasonable to frame the present turmoil through the prism of stagflation, the twin forces of slowing growth and rising prices. In the US, the shock is primarily inflationary because it is a substantial oil producer and energy exporter. But gasoline prices above $4 per gallon have already strained household budgets, and the Federal Reserve may be compelled to tighten monetary policy, raising interest rates and risking a sharp slowdown. This risk is compounded by the ‘negative wealth effect,’ as falling stock and bond prices erode household portfolios, leaving Americans spending less. For the European Union, the conflict has already added $16.2 billion (14 billion euros) to its fossil fuels import bill.For poorer oil importers in Asia and many in sub‑Saharan Africa the crisis is especially punishing. Wealthier nations can expand public debt to shield households, but developing economies lack such fiscal space. Beyond oil and gas, the crisis is also disrupting flows of fertilisers, petrochemicals, and industrial inputs, hitting low-income economies hardest. The long-term consequence is likely to be a sharp rise in global debt-to-GDP ratios, as governments spend more to secure supply chains, rearm, and reduce dependence on fossil fuels. Oil importing nations of the global south – Pakistan, Bangladesh, Sri Lanka, Jordan, Senegal, Egypt, Angola, Ethiopia and Zambia are facing acute fiscal strain. The crisis has also driven sharp increases in bond yields globally, reflecting inflation expectations and rising deficits. Turkey’s reserves, for instance, have plunged as its central bank sold U.S. securities to defend the Lira, a pattern mirrored in other vulnerable economies.India’s awkward moment wherein it was perceived to have drifted toward the Israeli‑US position, collides with its economic vulnerabilities. Energy prices have always been the single most important factor shaping the country’s outlook, and with almost half of its oil, gas, and LNG shipments normally passing through the Strait of Hormuz the disruption has triggered simultaneous pressures across inflation, the trade deficit, and the fiscal deficit, leaving policymakers with little room to maneuver. Unlike China, which has spent a decade building overland pipelines to diversify supply routes, India’s geography makes such alternatives nearly impossible without crossing Pakistan.While the rupee has largely stabilised around the Rs.93 level, it remains one of Asia’s most fragile currencies, depreciating more sharply than in previous years. Although India has made progress in electrification and green energy, the absolute volumes remain too modest to offset its dependence on Gulf hydrocarbons. But the war has laid bare India’s geostrategic and economic fragility, where energy security, currency stability, and fiscal resilience are all precariously tied to global maritime order.China, by contrast, emerges as the relative winner. With electricity generation anchored in coal, hydro, solar, and wind, and with vast oil reserves equivalent to three months of consumption, Beijing is insulated from the worst of the Gulf disruptions. Iranian oil continues to flow to China, and an inflationary shock would even help counter its persistent deflationary pressures.The Gulf economies are navigating this crisis in a deeply paradoxical way, caught between immediate windfalls from soaring oil prices and the heavy structural costs of prolonged instability. Exporters like Saudi Arabia and the UAE are benefiting from premium prices, selling crude to Asia at $140–150 per barrel despite reduced volumes. Yet this advantage is offset by mounting infrastructure losses, estimated at over $30 billion in petrochemical and oil services damage within just six weeks, alongside the spiraling costs of new defense systems, civil protection, and disrupted tourism and logistics.Saudi Arabia and the UAE have attempted to reroute volumes through pipelines to the Red Sea, but these flows averaging around 3.5 million barrels per day cannot replace the full capacity of Hormuz. Worse still, this alternative route depends on the Bab el-Mandeb strait, itself threatened by Houthi activity, creating a dual chokepoint crisis that magnifies regional insecurity. Sovereign wealth funds, collectively worth over $5 trillion, provide resilience, but the region cannot escape the reality that Vision 2030 and similar diversification strategies tourism, logistics, finance may embed a permanent security premium.Russia, too, has emerged as a beneficiary, filling the gap left by constrained Saudi and Iraqi exports with its own crude, particularly in the Indian market.For Iran, the war has compounded an already fragile economy, inflicting devastation on both its industrial base and civilian infrastructure. Early estimates place the losses at nearly $270 billion since the outbreak of the US–Israel attack on Iran on February 28, with oil and gas facilities, petrochemical plants, steel mills, and aluminium factories repeatedly targeted alongside military complexes. The destruction extends far beyond industry: bridges, ports, and railway networks have been damaged, universities and research centers disrupted, and power plants and desalination facilities crippled. As Tehran assesses the scale of destruction, it has sought to assert its rights by proposing a Strait of Hormuz protocol that would levy a tax on passing vessels and by demanding reparations from regional states whose territories were used to launch attacks against Iran.The IMF’s latest Global Financial Stability Report underscores mounting risks in private credit and technology‑related investments, warning of the dangers posed by excessive leverage and deep financial interconnectedness. It highlights that emerging markets are especially exposed, as non‑bank flows have become central to their financing yet remain highly vulnerable to shifts in global risk appetite.The new geopolitical reality is that states may have to seek bilateral arrangements for safe passage with Iran. Unless credible de‑escalation and maritime security frameworks are established, the risks of escalation will persist. More troubling still, energy markets now reflect not just supply and demand fundamentals but the enduring reality that disruption can be triggered at will, destabilising entire energy chains.Vaishali Basu Sharma is a strategic and economic affairs analyst.