Strikes on energy infrastructure from warfare could turn economic shocks into long-term damage

A new wave of strikes targeting Persian Gulf oil and gas infrastructure could continue to impact global businesses and consumers for months or even years.

The situation has completely changed.

Since the moment the U.S. and Israel launched attacks on Iran, the most concerning nightmare for the global economy has been the blockade of the Strait of Hormuz, the world’s most critical oil choke point.

But a very different and more unsettling nightmare has already unfolded: key energy production facilities in the Persian Gulf region have been directly attacked. These facilities supply a significant portion of the world’s natural gas; damage to them could cause long-term destruction worth millions of dollars.

Today, officials and economists are no longer speculating whether the war will last days or weeks but are beginning to assess its potential to last months or even years.

“We have shifted from temporary disruptions to long-term infrastructure strikes,” said David Goldwyn, a former U.S. diplomat and former Energy Department official.

The new phase of the conflict began on Wednesday, when Iran launched a retaliatory missile attack on Qatar’s massive Ras Laffan energy complex. This facility produces about one-fifth of the world’s liquefied natural gas, a fuel widely used in Eurasian households for heating, cooking, industrial production, and power generation.

On Thursday, Iran also attacked other oil refineries and natural gas facilities in Kuwait, Qatar, and Saudi Arabia. Previously, Israel had just struck Iran’s South Pars natural gas field.

Officials and workers are still clearing debris, and the overall damage assessment is incomplete. Nonetheless, Qatar’s energy minister Saad Sherida Al-Kaabi said on Thursday that repairs could take up to five years, and the country’s export capacity could decrease by 17%.

These attacks demonstrate that, despite Iran’s relatively limited strength, it wields significant influence over the global economy. Goldwyn noted that Iran, using low-cost, small-scale weapons against high-precision, expensive missile systems, has proven it can pose a long-term threat to various infrastructure in the Gulf region.

Much remains uncertain. The battlefield situation and high-level political decisions are changing at dizzying speeds. Will the attacks escalate? Will more critical energy facilities be targeted? How long will the Strait be blocked? How long will the war last? What happens after a ceasefire?

Although many energy facilities in the Persian Gulf have halted operations, most structures remain intact.

Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy, said, “The current situation is that if the Strait reopens tomorrow, most energy production in the region could recover relatively quickly within months.”

However, he added that if attacks continue, the situation could change at any time.

What is certain is that the damage caused by pressures on global energy supplies and shipping industries could push the global economy onto a much more dangerous new trajectory.

“This is the largest disruption of crude oil and refined product supplies in history,” said Jason Miller, a supply chain management professor at Michigan State University. “Oil permeates all goods,” meaning inflation impacts could be enormous.

Analysts at Wood Mackenzie, an energy consulting firm, have warned that oil prices reaching $200 per barrel by 2026 is not impossible, whereas pre-war prices were around $73.

Miller stated, “I can’t imagine energy prices reaching this level without causing a recession in many countries.”

Rising energy prices typically slow economic growth, increase unemployment, and accelerate inflation.

Notably, diesel and jet fuel, which have different refining processes, tend to rise faster than retail gasoline at the pump. This has a particularly severe impact on global air, sea, and land freight.

Ultimately, soaring energy prices will almost certainly push up the prices of nearly all traded goods: avocados, cars, sneakers, smartphones, and even medicines.

Some shipping companies are also facing skyrocketing freight costs, route closures, vessel delays, long detours, and high-risk insurance premiums.

Thousands of ships are congested and stranded in the Persian Gulf. Shipping giants like Maersk and CMA CGM have informed customers that they reserve the right to unload containers at the nearest available port, with additional costs to be borne by the customers.

While oil tends to dominate headlines, natural gas supplies are at the core of the economic shocks triggered by this week’s Gulf conflict escalation.

Liquefied natural gas (LNG) facilities are fewer than oil refineries. The world’s largest Qatar LNG plant has been shut down for weeks and sustained damage. This will also affect the prices and supplies of key materials like fertilizers and helium, which is a byproduct of natural gas and an essential raw material for semiconductor manufacturing.

Yong - Erik Fahnrich, senior analyst at Rystad Energy, said the impact goes far beyond the damage to gas fields themselves. Key Gulf energy facilities once considered safe are now seen as vulnerable targets, setting a precedent.

“The risk pricing cycle for buyers will be longer than the initial supply disruptions,” Fahnrich wrote in an analysis report.

Eurasian countries dependent on LNG may face prolonged natural gas price increases even after the Strait reopens.

Global governments are working to mitigate the surge in oil and gas prices. According to the International Energy Agency, Austria, Brazil, Italy, Portugal, and Turkey have cut or suspended fuel taxes; France, Hungary, Japan, South Korea, Mexico, and Thailand have implemented fuel price caps on some fuels.

Bangladesh has closed universities, Pakistan has suspended classes for two weeks, and Sri Lanka has implemented fuel rationing.

The agency noted, “Many consumers worldwide have yet to recover from the price shocks during the global energy crisis from 2021 to 2023.”

After years of pandemic impacts, supply chain disruptions, and severe inflation, many governments are financially strained and heavily indebted, limiting their capacity to respond to a new crisis.