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Missiles, Gas, and Oil

The third US Gulf War has entered its fourth week. Fatih Birol, director of the International Energy Agency (IEA), was quick to describe it as the largest supply disruption in the history of the global oil market, due to the closure of the Strait of Hormuz. In normal times, 20 million barrels per day (Mb/d) of crude oil and refined products flow through the Strait of Hormuz. 80% of the total flow is destined for Asia, rising to 90% in the case of liquefied natural gas (LNG). Iran claims that the Strait is closed only to its enemies, but, for all practical purposes, the risk of crossing it is such that insurance premiums for oil tankers not explicitly authorised to do so are prohibitively high. With no storage capacity for the extracted crude and hoping to reduce the number of targets, the Gulf States have cut their oil production by at least 10 Mb/d. According to Daniel Yergin, by far the biggest disruption in world history is also such in terms of daily oil production.

The blockade of the Strait is the spearhead of Tehran’s forward defence, which has responded to intensive Israeli-American bombing and the targeted assassination of its leaders by expanding the conflict across the entire region, striking US bases, oil wells, energy terminals, and the petro-monarchies’ data centres. Despite Donald Trump’s boasts, Iran’s arsenal does not appear to have been obliterated at all. The Economist denounced Trump’s adventurism across its last three covers in March: A war without strategy that unleashes an attack on the global economy in what it calls Operation Blind Fury. The first attack on the global economy was launched by Trump on April 2nd, 2025, with tariffs imposed on all countries, friend and foe alike. The Supreme Court declared those tariffs unlawful on February 20th this year. Eight days later, the assault on Iran began.

Hormuz and the IEA

The closure of Hormuz removes 20% of global consumption from the world market. According to Michael Froman, president of the Council on Foreign Relations (CFR), the 1973 Arab oil embargo deprived the world market of 4 Mb/d, equivalent to 7% of global consumption at the time. The 32 consumer countries belonging to the IEA have unanimously decided to release 400 million barrels of strategic emergency reserves over 120 days — just over 3 Mb/d — the largest release in the Agency’s history but insufficient to fill the gap. According to the Agency, consumer countries hold stocks and reserves amounting to 8.2 billion barrels, roughly equivalent to 80 days of global consumption, but none intend to release them onto the market lightly.

Birol has proposed a set of energy-saving guidelines that brings together a range of measures adopted since the 1973 crisis, including odd-even number-plate restrictions and remote working. Some governments are adopting emergency measures, involving tax breaks and cautious subsidies, given the low growth rates and tight fiscal margins, which are residual compared to rearmament commitments. Energy crises expose the vulnerabilities of systems. In Europe, the controversy between the champions and the naysayers of the green economy is resurfacing over the ETS, the carbon market, which is unpopular with energy-intensive industries that would like to scrap it or at least overhaul it. In India, still in a phase of delayed modernisation, restaurants have closed their doors due to a shortage of cooking gas: only 5% of households are connected to the mains, while the vast majority rely on LPG cylinders. ASEAN is alarmed by the energy bottleneck, and this was enough for Indonesia — which had joined Trump’s Board of Peace — to announce its intention to reconsider its membership. The most indebted countries fear energy price hikes that are devouring their foreign currency reserves.

As was the case at the start of the Ukraine crisis, the supply issue is not limited to energy. Food is the first casualty, and hunger is the most pervasive weapon against the civilian population. In Iran, food inflation has risen by 40% over the past year; the price of rice has increased sevenfold, and that of vegetable oil threefold. Natural gas and its derivatives are vital for agrochemicals. Saudi Arabia, Bahrain, Oman, and Qatar are major exporters of urea, ammonium phosphates, and pure ammonia. The war is putting a third of the trade in nitrogen-based fertilisers at risk, severely compromised by the collapse in natural gas supplies.

Energy inflation

Prices are the main driver of the energy crisis. On March 20th, Texas crude (WTI) cost $98 per barrel, a 48% increase compared to the end of February, while Euro-Middle Eastern crude (Brent) stood at $112 (+57%). Liquefied natural gas in Europe (Amsterdam) cost €63 per megawatt-hour (+91%), in Asia $74 (+100%), and in the United States (Henry Hub) $10.60 (+1%). In the production of natural gas and LNG in America, shale gas has a formidable advantage as a source of competitiveness and differential rent vis-à-vis Europe, which is forced to import US LNG. Coal has reached $147 per tonne (+27%), reflecting the increase in stocks destined for coal-fired power stations. It remains to be seen whether this will be an opportunity for Germany to reactivate its nuclear power stations, which have been in the process of being phased out following the Fukushima accident in Japan.

CFR economist Brad Setser estimates that, even taking into account emergency reserves and oil that can be transported via the two pipelines from the Arabian Peninsula to the Red Sea and the Gulf of Oman, a prolonged closure would still deprive the market of 10 Mb/d, equivalent to 10% of global consumption. Setser cites the old rule of oil arithmetic, whereby a 1% drop in supply leads to a $10 per barrel increase. It follows, according to Setser, that current price rises do not exhaust the upward momentum, which may be heading towards $170 per barrel. A comparison with historical peaks in Brent prices, adjusted for inflation, was made by James Mackintosh in The Wall Street Journal: $179 per barrel following the 1979 Iranian Revolution, $155 at the time of Iraq’s invasion of Iran in 1980, $180 during the Arab Spring of 2011, and $130 following the invasion of Ukraine in 2022. The current price sits at the lower end of the range because the starting price was low ($72), but its rise has been among the most significant.

The crucial issue is the time factor: the duration of the war. In early March, the British geo-economic analysis firm Capital Economics outlined three scenarios: a two-week conflict, a scenario now obsolete; a three-month conflict with limited long-term damage, resulting in losses of 5-6% of global energy exports by 2026; and a three-month conflict, but with greater losses resulting from the destruction of facilities on Kharg Island, Iran’s central hub, with losses of 8-9% in global oil and LNG exports. The impact would last until 2027 and the price of oil would rise to $150 per barrel, while the price of gas in Europe would reach €120 per megawatt-hour. The study emphasises that only this third scenario is comparable to the global shock that occurred between the late 1970s and the mid-1980s. This observation serves to put Birol and Yergin’s rhetoric about destructive records into perspective.

Central banks and the IMF

All the major central banks that have met since the start of the bombing — the Fed, the ECB, the Bank of England, and the Bank of Japan — have kept interest rates on hold, while expecting inflation to rise by roughly 0.5%. Across the board, a repeat of the virulent inflation seen in 2022 — which surged following the war in Ukraine when the average rate exceeded 10% — has been ruled out. Everywhere, it has been stated that inflationary expectations remain firmly anchored to the monetary authorities’ targets. For now, there are no fears of stagflation. Central banks are prioritising their role in reassuring the markets, but do not rule out further fragmentation to supply chains in the event of a prolonged war.

Kristalina Georgieva, head of the IMF, was more alarmed during her visit to Tokyo. Her rule of thumb regarding inflationary risk states that every 10% increase in oil prices, if persistent, translates into a 40-base-point rise in global inflation. This means that, if current oil prices persist, additional inflation would be 2%, a significant problem for central banks, which would have to intervene swiftly with rate hikes. Georgieva has the disenchanted air of someone who, in her six years at the IMF, has done nothing but face one crisis after another, without respite: And if, as we all hope, the conflict ends soon, then be sure that, before long, some new shock will come. My advice to policymakers everywhere [...]: think of the unthinkable and prepare for it. What will be unthinkable in a post-war Middle East? Do the Abraham Accords stand any chance of survival? Will America be able to re-establish its reputation as an indispensable power? What form will the need for deterrence among the region’s major States — including Turkey — take?

A lesson from the 1920s

Five days after the outbreak of the Iranian conflict, at a conference in Bologna, Christine Lagarde offered some reflections on the nature of the new world order: The defining feature of this moment is not simply that risks are rising. It is that we are leaving a world where risk can be measured and modelled, and entering one of genuine uncertainty. Until now, risk represented a stable enough system that past outcomes could guide future decisions. Over the last 30 years, the trading system was anchored by multilateral rules. The monetary framework rested on credible central banks. The geopolitical order provided a predictable backdrop. According to Lagarde, the series of events triggering this shift began with the pandemic, which highlighted the fragility of global supply chains and triggered a lasting shift towards reshoring, and continued with the Russian invasion of Ukraine and the transformation of the global trading system into a site of conflict, where dependencies are exploited as a weapon.

This picture of geopolitical fragmentation is accompanied by the technological transformation of artificial intelligence (AI). These two forces [...] pull in opposite directions. AI can drastically increase growth potential, while fragmentation can drastically reduce it. This picture has a striking parallel with the 1920s. Back then as well, there was a massive technological wave — the internal combustion engine, assembly lines that revolutionised production, and electricity grids. Productivity per worker almost doubled between 1919 and 1929. This technological optimism spilled into stock markets. [...] But in parallel, the international environment was fracturing. [...] For much of the 1920s, technology and fragmentation appeared to develop on separate tracks. Confidence collapsed with the crash of 1929, the Smoot-Hawley tariffs, and the rise of economic nationalism.

The lesson Lagarde draws is: What looked like two independent forces were actually a single, compounding risk. Technology and the international order were deeply interconnected, yet policymakers of the 1920s acted as if they were separate domains.

This is Lagarde’s version of the unity and scission of the world order. The spiral of imperialism forces her, unwittingly, to conceive the basic idea of Unitary Imperialism. Arrigo Cervetto opens the preface of July 1981 with two sentences from the Draft Resolution of the Zimmerwald Left, written by Lenin in 1915: The whole world is merging into a single economic organism; it has been carved up among a handful of Great Powers.

Translated from the original work by , published in Lotta Comunista, , p. 21.

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