Global economy hobbled by protracted war and surging oil prices... warning that up to 32.5 million could fall into poverty

The Financial News, New York City —As the war between the United States and the Islamic Republic of Iran drags on and hopes for a cease-fire fade, concerns are mounting that a global economic recovery could be delayed for an extended period even after the fighting ends. The destruction of energy facilities in the Middle East has fueled projections that international oil prices will remain elevated for at least a year. Alongside forecasts of an unavoidable global downturn, warnings have emerged that this war could push up to 32.5 million people worldwide into poverty.

According to The Wall Street Journal (WSJ) on the 13th (local time), Kreditanstalt für Wiederaufbau (KfW), Germany’s state-owned development bank, recently told clients in a report that crude prices are unlikely to return to pre-war levels before the end of next year. International benchmark crude is currently trading at around $100 a barrel. However, if the blockade of the Strait of Hormuz continues, further price increases are seen as inevitable. The Strait of Hormuz is a vital chokepoint that handles about 20% of the world’s seaborne oil shipments.
Kurt Barrow, head of oil market research at S&P Global Energy, told Financial Times (FT), “The Strait of Hormuz remains effectively closed, and it is unclear when it will return to normal,” adding, “Physical crude volumes are stuck in the Gulf, and the risks for ships entering the area have risen sharply.”
In fact, oil output in key Middle Eastern producers has plunged since the war began. According to the Organization of the Petroleum Exporting Countries (OPEC), Iraq’s daily production fell 61%, from 4.2 million barrels in February to 1.6 million barrels in March. The State of Kuwait saw a 53% drop, while the United Arab Emirates (UAE) recorded a 44% decline.
The Kingdom of Saudi Arabia, OPEC’s largest producer, also cut output by 23%, from 10.1 million barrels per day to 7.8 million barrels. Saudi Arabia has been relying on its east–west pipeline network to reroute exports via the Red Sea, but even that infrastructure has come under attack from Iran, reducing its transport capacity by 700,000 barrels per day.
Fatih Birol, executive director of the International Energy Agency (IEA), said member states could release additional strategic oil reserves to curb rising prices. IEA members already injected a record 400 million barrels of reserves into the market in March.

The surge in energy prices is exerting broad downward pressure on the global economy.
UBS has estimated that if disruptions to shipping through the Strait of Hormuz persist for another two months, the world economy may not return to its previous growth path until the end of 2028. Should the blockade drag on, UBS projects global growth could come in 1 percentage point below earlier forecasts, and it warned that the United States could slip into a mild recession.
Gulf countries whose energy exports have been choked off are facing their worst conditions in decades. Consulting firm Rystad Energy estimates that infrastructure repair costs could exceed $25 billion. Capital Economics forecasts that this year’s gross domestic product (GDP) will shrink by 13% in Qatar, 8% in the UAE and 6.6% in Saudi Arabia.
The European Union (EU), whose economy was already fragile before the war, is also at growing risk of slipping into recession. Ursula von der Leyen, President of the European Commission, said the blockade of the Strait of Hormuz is “causing very serious damage to the European economy” and announced that Brussels is working on countermeasures.

Asian economies that rely heavily on Middle Eastern crude are being hit particularly hard.
In Japan, a shortage of naphtha has forced home furnishings maker TOTO to suspend orders for prefabricated bathroom units. Hospitals are warning of potential shortages of medical-grade plastics and are urging the government to act. Prime Minister Sanae Takaichi has set up a response team and stressed that Japan has secured four months’ worth of naphtha, saying short-term supply disruptions should be limited.
In the Philippines, where more than 95% of crude imports come from the Middle East, gasoline prices have doubled, prompting the government to declare a national energy emergency. Indonesia and Vietnam have recommended working from home, while Australia has moved to release oil reserves and cut fuel taxes.
The United Nations Development Programme (UNDP) has warned that a “triple shock” of higher energy prices, supply disruptions, rising food costs and slowing growth could push up to 32.5 million people into poverty.




pride@fnnews.com Reporter Lee Byung-chul Reporter