Assessing the global economic impact of the Middle East war
However, helping to a certain degree at the moment is the fact that oil inventories are more comfortable than they were in the lead-up to Russia’s invasion of Ukraine. OECD stocks are in the region of 200m barrels higher now than prior to the Russia/Ukraine war. Still, a two-week full blockade would essentially see this buffer disappear, leaving significant upside to prices.
For natural gas, as much as 125bcm of LNG flows are at risk, which is around 3% of global natural gas consumption, but 22% of global LNG trade. However, the roughly 15bcm that Oman exports will be at less of a risk, given cargoes don’t need to navigate the Strait of Hormuz, but will still be in close proximity to danger.
In the lead-up to Russia’s invasion of Ukraine, close to 160bcm of Russian gas (pipeline and LNG to the EU) was at risk. The market is relatively better positioned now, given the build-up of LNG export capacity, largely from the US. Since the beginning of 2025, we have seen around 40bcm of US capacity starting up, while a further 14bcm is set to start this year, and there will be significantly more in the years ahead. However, in the immediate term, capacity additions fall well short of potential Persian Gulf supply losses.
A tighter market would see Asia and Europe competing more aggressively for LNG cargoes, pushing up prices. Price-sensitive buyers in Asia will likely step back from the market, while Europe would likely not make the same mistake as it did in 2022, where buyers bought aggressively regardless of price levels.
In the eurozone – and similarly in the US – the labour market is another important way in which today differs from 2022. In the UK, for example, worker shortages were still widespread in 2022, which amplified the pass‑through from higher inflation to wage growth. The jobs market is now much cooler, so that mechanism should be far less pronounced. The same likely applies to the eurozone, judging by European Commission surveys showing fewer firms reporting labour shortages as a constraint on production.
At the same time, what is different from a macro perspective compared with 2022 is the fact that in 2022 most major economies looked resilient and governments, which had already introduced fiscal support during the pandemic, announced more measures to prevent too much of a purchasing power loss due to higher energy prices.
