A week of strikes exchanged between Israel and Iran has caused significant disruption to the Gulf region, as well as globally, with the energy sector and the economy taking a hit.
The recent escalations have raised concerns that the conflict will target the Gulf, which is one of the world’s most important oil and gas producing regions.
So far, Israel has already struck Iran’s fossil fuel sector, causing a blaze at the South Pars gas field, and the continued conflict has seen gas prices increase by at least seven percent this week.
Iran’s oil exports have also come close to a halt, particularly from the Kharg Island, which accounts for over 90 percent of its shipments, reports state.
Israel, too, has been affected and was forced to shut down two of its three offshore natural gas fields and reduce its gas supply by almost two-thirds.
The Strait of Hormuz, an important passage for global oil and gas shipments, has been an increasing point of concern as Iranian officials have threatened to close it, which estimates suggest will likely cause oil prices to soar above $100 per barrel and create global shortages.
Tensions in the region, coupled with attacks on shipping vessels and blockades as well as increased insurance costs, have already caused a spike in shipping costs, and could have a greater impact on trade if the conflict escalates.
Financial markets, tourism
Since the launch of Israel’s strikes on Iran, there has been a rise in volatility in global financial markets, with stock indices in the Gulf and broader region showing declines, as investors move towards safer assets.
The rise in oil prices has further increased production costs for energy-dependent goods, which has contributed to inflation and could threaten economic growth in countries that import oil.
Recent events could also mean that central banks in the Gulf and globally may have less flexibility when it comes to managing inflation.
The region’s economies could further be at risk due to the disruptions to transport routes, volatile energy prices, reduced tourism, and higher spending with weaker consumer and investor confidence, S&P Global reported.
Meanwhile, Gulf nations are reportedly concerned that Israel may try to target Iran’s Bushehr nuclear power plant on the Persian Gulf, which could cause radioactive contamination of a vital resource, which supplies large-scale desalination plants that produce water for drinking and industrial purposes.
The Gulf Cooperation Council has already instructed its Emergency Management Centre to closely monitor radiation levels and increase coordination through an early warning system as the conflict shows no signs of abating.