Europe and Asia are bearing the brunt of the ongoing conflict, as global oil and gas supplies are plunged into turmoil
Marco Carnelos is a former Italian diplomat. He has been assigned to Somalia, Australia and the United Nations. He served in the foreign policy staff of three Italian prime ministers between 1995 and 2011. More recently he has been Middle East peace process coordinator special envoy for Syria for the Italian government and, until November 2017, Italy’s ambassador to Iraq.
Cross-posted from Middle East Eye
Photo: Screen Grab
In war, economic consequences often follow a logic distinct from military objectives. The unprovoked and illegal US–Israeli attack on Iran that began on 28 February is a striking case study.
Among the several objectives raised by the two aggressors – goals, incidentally, that have constantly shifted – the desire to weaken Tehran has appeared among the more pressing. But the conflict’s most severe economic repercussions have instead fallen mainly on Washington’s European and Asian allies.
Due to Iran’s blockade of the Strait of Hormuz, and the region’s centrality to global energy and commodities supplies, the war has triggered an asymmetric shock. Europe and Asia are now bearing the brunt of energy scarcity, inflationary pressures and redirected global trade.
Before the war began, a fifth of global liquefied natural gas (LNG) exports, along with a third of crude oil and fertiliser exports, two-fifths of helium exports, and nearly half of sulphur exports, flowed through the Strait of Hormuz.
The US-Israeli military campaign drove the closure of this artery, while Iran’s reprisal has also targeted oil and gas production plants and tankers in Gulf states. As insurance premiums skyrocketed, shipping ground to a halt.
The relevance of oil and gas for the global economy is well known, while fertilisers are critical for food production, and helium and sulphur for microchips. The world is thus simultaneously facing an energy crunch, a food supply crisis, and a major threat to the digital economy, which could affect everything from lawnmowers to data centres supporting AI.
Around 90 percent of Gulf LNG exports are destined for Asia, with the remaining 10 percent heading to Europe. For oil, around 80 percent of crude transported through Hormuz flows to Asia, compared with just four percent to Europe.
Economic trauma
Asia is thus experiencing the most immediate and severe economic trauma. The region hosts manufacturing giants, from China to South Korea, and Japan to India – not to mention Taiwan for the critical manufacturing of chips. They are now confronting a perfect storm of physical shortages, price spikes and redirected supply chains.
Since the conflict began, stock market declines have correlated clearly with energy import dependence. South Korea, with an energy deficit equivalent to 5.7 percent of its GDP and around 70 percent of its oil coming from the Gulf, has seen its market plummet 12 percent. Thailand (down 10.7 percent), Vietnam (down 8.8 percent), and Japan (down 7.2 percent) have suffered similar fates.
These are not abstract financial shifts; they represent destroyed capital, delayed investments, and rising borrowing costs for Asian firms.
Asia’s reliance on Qatar has proven catastrophic. Ras Laffan, the world’s largest LNG export facility, has suffered significant damage from Iranian retaliatory strikes, with state-owned QatarEnergy admitting that 17 percent of its export capacity has been affected, and repairs will take three to five years.
For Asian buyers, this is devastating. In 2024, a total of 20 percent of Qatar’s LNG exports went to China, 12 percent to India, 10 percent to South Korea, seven percent to Pakistan and six percent to Taiwan. These nations are now competing for a diminished supply.
Europe’s economic pain is more deferred than Asia’s, but potentially more dangerous due to the continent’s depleted energy reserves and the approaching need to replenish them for winter.
Europe remains heavily dependent on the global market for diesel and refined products. With Asian buyers outbidding them for available supplies, European nations face the prospect of empty diesel tanks – a catastrophic scenario for a continent that relies on diesel for trucking, agriculture and construction.
A further pressing problem for Europe is its dangerously low gas storage levels. Currently, European facilities are at just 28.9 percent of capacity – far lower than previous years at this time.
According to EU mandates, the continent must fill these reserves to 90 percent before the winter sets in. With Gulf LNG offline and Russian pipelines closed, Europe must compete with Asia for US and Norwegian gas. Some analysts are warning that even if inventories reach 80 percent capacity by October, it would be “one of the lowest levels in the last 10 years” – potentially triggering an energy crisis comparable to 2022.
Brutal calculus
Gas prices have already surged 98 percent since the war began, and in a worst-case scenario, prices could reach €90 ($104) per megawatt hour for six months, not returning to pre-war levels until 2027.
The macroeconomic consequences are already visible. Germany, Europe’s industrial engine, has seen its market drop eight percent, with France and Italy down 7.7 percent and 6.6 percent respectively. Every major European economy is a net energy importer, with Greece (2.4 percent of GDP), Italy (two percent), and Spain (1.8 percent) most exposed.
The war has arrived just as Europe was staging a fragile post-Ukraine recovery, crushing hopes for growth and reigniting inflationary pressures.
The most politically significant aspect of this crisis is the degree to which the US seems less exposed to the economic consequences, while demanding that its allies bear the costs. Indeed, US energy firms stand to profit as European and Asian buyers compete for American LNG and crude.
US President Donald Trump has made this calculus brutally explicit. In a recent post on social media, he addressed allies struggling with fuel shortages, writing that they should “buy from the U.S., we have plenty … [or] go to the Strait, and just TAKE IT. You’ll have to start learning how to fight for yourself; the U.S.A. won’t be there to help you anymore”.
The statement is the equivalent of a serial arsonist blaming his victims for not being adequately engaged in helping him extinguish the fire he started.
Indeed, Europe is watching from the sidelines as its economy is battered by a conflict it did not authorise and cannot control. While the US-Israeli war on Iran may achieve limited military objectives, its economic legacy will be the fracturing of western alliances and the severe weakening of key partner economies.
The US profits from the turmoil while demanding that its allies fend for themselves. In this calculus, while Iran’s economy has certainly been hugely damaged, the broader attack is targeting the very nations that the US and Israel have traditionally viewed as their closest partners. Where Russia’s aggression against Ukraine re-energised Nato, the severe consequences of the war on Iran risk permanently fracturing the alliance.
This raises pressing questions: when will European leaders begin to review the foreign policy choices they’ve taken in the last four years? And when will US allies in Europe, the Middle East and Asia finally learn the most important geopolitical lesson of the second half of the 20th century, more valid today than ever before: that being an enemy of the US can be dangerous, but being a friend can be fatal?
Be the first to comment