WASHINGTON (TNND) — Renewed fighting between the United States and Iran is threatening to erase weeks of progress for the global economy, sending oil prices higher again and reviving concerns of another inflationary energy shock.
The latest exchange of attacks is the most serious escalation since the two sides agreed to a 60-day ceasefire last month. While it remains unclear whether the fighting will grow into a resumption of all-out war, the possibility has rattled energy markets again over concerns about the Strait of Hormuz, a critical shipping lane for roughly 20% of the world’s oil and natural gas.
Higher oil prices have far-reaching effects across the economy, increasing the cost of gasoline, transportation, manufacturing and food.
The U.S. and Iran have exchanged attacks for the last two days, the biggest escalation since the truce was signed. U.S. military officials said 90 Iranian military targets had been hit to “further degrade Iran’s ability to attack commercial shipping and innocent civilian mariners in the Strait of Hormuz.”
The ceasefire has been interrupted by sporadic fighting since it was signed, but the latest confrontations are leaving world leaders and companies to figure out what might come next.
“To me, I think it’s over,” President Donald Trump said of the ceasefire on Wednesday. “I don’t want to deal with them.”
Trump seemed to leave the door open to more talks but was skeptical they would yield any progress, saying he thought negotiators would be “wasting their time.” He also framed the new strikes as targeted actions to pressure Iran to stop threatening tankers in the Strait of Hormuz.
“Anything that happens is going to happen very fast,” Trump said on Wednesday. “We’re not looking for a long time.”
Threats and attacks on tankers in the Strait of Hormuz brought traffic to a halt during the height of the conflict, sending energy prices sharply higher and raising costs for gasoline, food and other consumer goods. The ceasefire gradually restored some shipping volume and pushed oil prices back toward pre-war levels before the latest fighting reversed some of those gains.
Some of that progress has already reversed since the exchange of fire on concerns the truce may be slipping away, with oil prices climbing 6% after the president said the ceasefire was over. Markets had largely priced in a continuation of the ceasefire before the latest attacks.
Even before doubts about the stability of the ceasefire started, the global economy had already been bruised by the conflict.
Before the latest fighting, the International Monetary Fund downgraded its forecast for the global economy this year. It projected the economy to grow 3% this year, a drop from 3.5% last year.
Oil prices are projected to be 32% higher this year compared to last and inflation to increase 4.7%. The IMF forecast assumes the Strait of Hormuz will reopen later this month and commerce through the waterway will return to normal by next month, an assumption now thrown into doubt by the renewed fighting.
Some of the economic damage from the oil shock was minimized by massive drawdowns of reserves that made up for lost supply stuck in the Middle East. In the U.S., stocks of crude oil in the Strategic Petroleum Reserve recently hit the lowest level since 1983 after Trump authorized the release of 172 million barrels during the war, raising questions about how much cushion remains if fighting escalates again. China has also imported significantly less oil since the war started, easing pressure on global demand for oil.
“The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions,” the IMF said in its report.
Renewed fighting with Iran is the latest headwind facing the economy, which has also had to deal with tariff uncertainty and trade wars. Trump’s aggressive use of tariffs forced companies in the U.S. and abroad to readjust supply chains and slowed global trade.
“This kind of volatility isn’t something that’s helpful. This kind of volatility just thwarts innovation, thwarts economic development, and we see it manifesting a number of ways,” said Joe LiPuma, a global business consultant and author. “It’s defensive mode.”
A potential return to war is renewing the prospect of higher inflation after energy prices had dipped during the 60-day ceasefire, adding another layer of uncertainty for businesses already navigating tariffs and shifting supply chains.
“We’re back to where we were a few months back,” LiPuma said. “Companies don’t know what’s going to happen regulatory wise, don’t know what’s going to happen in labor, don’t know what’s going to happen with oil, and so you freeze.”
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