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The latest escalation of conflict in the Middle East is sending shockwaves through the global economy, deepening inequality between nations and within societies as rising energy prices, food insecurity, and financial instability disproportionately affect the world’s poorest.

Oil Shock Drives Unequal Economic Pain

At the heart of the crisis is a disruption to global energy markets. The region accounts for a critical share of global oil supply, with around 20% of the world’s oil passing through the Strait of Hormuz, making it highly vulnerable to conflict-related disruptions.

Oil prices have surged above $100 per barrel, with projections suggesting spikes beyond $150 if the conflict escalates further. According to the International Monetary Fund, a sustained 10% increase in oil prices can raise global inflation by about 0.4 percentage points while slowing economic growth.

While wealthier nations can rely on reserves and policy tools, poorer countries face immediate fiscal strain, widening the global economic divide.

Developing Nations Bear the Brunt

The impact is especially severe in lower-income, energy-importing countries such as Pakistan, Bangladesh, and Kenya.

In Pakistan, which imports over 70% of its energy, rising oil prices are worsening inflation and increasing debt repayment pressure. Similarly, Bangladesh faces power shortages that threaten its export-driven garment industry, putting millions of low-wage jobs at risk.

In Kenya, where households spend a significant portion of income on food, rising fuel costs have driven sharp increases in food prices, intensifying the cost-of-living crisis.

Meanwhile, countries like Egypt, one of the world’s largest wheat importers and Sri Lanka, still recovering from economic collapse, face growing risks of fiscal instability and social unrest.

Malaysia: Caught Between Opportunity and Rising Costs

For Malaysia, the impact is more complex. As a net oil and gas exporter, the country can benefit from higher global energy prices through increased revenues, particularly via national oil company Petronas.

However, these gains come with trade-offs;

Malaysia maintains fuel subsidies to shield consumers from global price volatility. As oil prices rise, the government faces increased fiscal pressure to sustain these subsidies, which can strain public finances.

Although headline inflation in Malaysia remains lower than in many developing countries, lower-income households still feel the squeeze, particularly in urban areas where living costs are higher.

Economists warn that if global oil prices remain elevated, Malaysia may need to recalibrate subsidies or increase targeted aid, balancing fiscal sustainability with social protection.

Food Crisis Threatens Hundreds of Millions

The economic shock is spilling into global food systems. Rising fuel and fertilizer costs are pushing food prices higher, while supply chain disruptions limit availability.

The World Food Programme warns that up to 363 million people worldwide are now facing acute food insecurity, with tens of millions at risk of being pushed into hunger due to the crisis.

Low-income households are hardest hit, as they spend a larger share of their income on basic necessities, making even small price increases devastating.

Trade and Supply Chains Under Pressure

Global trade is also slowing. Disruptions to key shipping routes are increasing transport costs and delaying deliveries.

The World Trade Organization estimates global trade growth could fall to around 1.9% in 2026, down sharply from previous expectations.

For developing economies that depend heavily on exports, this slowdown translates into job losses, reduced incomes, and widening inequality.

Financial Markets Deepen the Divide

Financial markets are reacting with caution, with investors shifting toward safe-haven assets such as the U.S. dollar.

While this benefits advanced economies, it places additional pressure on emerging markets by:

1. Increasing the cost of servicing foreign debt

2. Triggering capital outflows

3. Weakening local currencies

This dynamic further limits growth in already vulnerable economies.

Rising Risk of Global Recession

Economists warn that prolonged high oil prices could push the global economy toward recession. Oil prices sustained above $138 per barrel significantly increase recession risks.

The International Monetary Fund had projected global growth of 3.3% in 2026, but the ongoing conflict now threatens to derail that outlook.

Conclusion: A Crisis That Deepens Global Divides

The Middle East conflict is no longer confined to geopolitics; it has become a powerful driver of global economic inequality.

From Pakistan to Kenya, vulnerable nations are facing rising inflation, food insecurity, and financial strain with limited capacity to respond. Meanwhile, countries like Malaysia illustrate the complex middle ground benefiting from higher energy prices while still grappling with rising living costs at home.

Without coordinated global intervention, the long-term impact could be profound: a more divided global economy where the poorest countries and communities bear the heaviest burden of a crisis they did little to create.

References

International Monetary Fund
International Monetary Fund. (2026, March 3). Statement on the economic impact of Middle East tensions. https://www.imf.org/en/news/articles/2026/03/03/pr-26068-statement-on-middle-east

Reuters
Reuters. (2026, March 3). Middle East war economic impact depends on duration and energy costs, IMF says. https://www.reuters.com/world/middle-east/middle-east-war-economic-impact-depend-duration-damage-energy-costs-imf-official-2026-03-03/

The Guardian
The Guardian. (2026, March 22). Iran war could push the global economy toward inflation and crisis. https://www.theguardian.com/news/ng-interactive/2026/mar/22/iran-war-global-economy-donald-trump-oil-prices-inflation

The Guardian
The Guardian. (2026, March 19). Oil prices and global trade slowdown amid geopolitical tensions. https://www.theguardian.com/business/2026/mar/19/oil-prices-ai-boom-wto-iran-war-energy-global-economy

World Food Programme
World Food Programme. (2026). Global report on food crises 2026. https://www.wfp.org/publications/global-report-food-crises-2026

World Trade Organization
World Trade Organization. (2026). Global trade outlook and statistics 2026.
https://www.wto.org/english/res_e/statis_e/wts2026_e/wts2026_e.pdf

The Washington Post
The Washington Post. (2026, March 19). How the Middle East conflict is affecting the global economy.
https://www.washingtonpost.com/world/2026/03/19/iran-war-global-economic-impact/

Global military expenditure reached $2.72 trillion in 2024, marking the steepest annual increase since the Cold War (Stockholm International Peace Research Institute [SIPRI], 2025). Over the past decade, spending has grown by 37%, highlighting a structural pattern: war is not merely reactive, but embedded within the global economic system.

Militarization as Structural Violence

Resources allocated to defense come at the expense of social sectors such as healthcare, education, and climate initiatives. Vulnerable populations disproportionately bear these costs, reflecting how militarization operates as a form of structural violence (Centre for Economic Policy Research [CEPR], 2024).

Conflict and Profit

Major arms manufacturers profit directly from instability. In 2024, firms such as Lockheed Martin, RTX Corporation, and BAE Systems generated $679 billion in revenue, with earnings peaking during heightened geopolitical tension (SIPRI, 2025). Peace reduces demand; conflict expands markets—a systemic incentive that economically rewards war over diplomacy.

Prolonged Conflicts and External Inputs

Modern wars, including Russia–Ukraine, are increasingly prolonged and dependent on external support. Russia’s defense budget rose 38% to $149 billion in 2024, while Ukraine allocated nearly 34% of GDP to military spending—the highest globally (World Bank, 2025). Over 100 countries increased military budgets in 2024, creating a cycle where insecurity drives militarisation, which fuels further instability.

Economic and Social Costs

The myth that war stimulates economic growth is contradicted by evidence. CEPR (2024) finds GDP in conflict-affected countries can fall over 30% within five years, with early-stage inflation common. Military spending diverts trillions from public services, while ordinary citizens face inflation, disrupted food supply, and fiscal instability, reinforcing structural inequality (International Monetary Fund [IMF], 2024).

Limits of Regulation

International law and multilateral institutions have limited impact:

The Arms Trade Treaty lacks universal participation and binding enforcement (SIPRI, 2025).

UN arms embargoes are rare and enforcement depends on member states (United Nations, 2024).

Major arms exporters continue supplying conflict zones, sustaining wars.

States with the greatest enforcement capacity often shape rules to suit strategic and economic interests, perpetuating structural impunity.

Conclusion

The war economy sustains conflict, undermines development, and deepens inequality. Effective interventions require enforceable limits on arms transfers, reductions in military spending, reallocating resources toward social development, and prioritizing diplomacy over militarization. Until the structural logic of profit-driven conflict is addressed, war will persist not as a political anomaly, but as an economically sustained system of violence.

References

Centre for Economic Policy Research. (2024). The economic impact of armed conflict. CEPR Press.

International Monetary Fund. (2024). Conflict and economic instability: Implications for low- and middle-income countries. IMF Working Paper.

Stockholm International Peace Research Institute. (2025). SIPRI Yearbook 2025: Armaments, Disarmament and International Security. Oxford University Press.

United Nations. (2024). UN arms embargoes and enforcement: Annual report. UN Department of Peace Operations.

World Bank. (2025). Global military expenditure and economic impact: Ukraine case study. World Bank Research Brief.

March 23, 2026

A potential diplomatic breakthrough between the United States and Iran remains uncertain, as no formal ceasefire has been reached.

U.S. President Donald Trump announced a five-day pause on planned military strikes against Iranian energy infrastructure, describing ongoing contacts as “productive.” The move is seen as an attempt to open space for negotiations following weeks of escalating conflict.

However, Iranian officials have denied that formal talks are taking place, casting doubt on the progress of diplomacy and highlighting a gap in narratives between the two sides.

International actors including Oman, Qatar, and other regional mediators are actively pushing for a ceasefire. However, both sides remain far apart on key demands.

The conflict continues to center around the strategic Strait of Hormuz, a vital global oil transit route. Iran has threatened further disruption, while Washington has demanded its reopening, raising concerns over global energy stability.

Denies from Iran, global and economic pressure are probably the main reason behind this premature decision.

While many briefly reacted positively to news of the pause, analysts warn the situation remains volatile. The halt in strikes is temporary and conditional, not a ceasefire.

For now, the reality is clear, there are talks but there is no peace.

As Iran effectively closes the Strait of Hormuz to Western shipping, a select group of nations have reportedly secured passage for their vessels through back-channel negotiations and geopolitical alignment.

Since March 2, 2026, Iran has enforced a de facto blockade of the Strait of Hormuz—the chokepoint through which one-fifth of global oil and liquefied natural gas transits—following retaliatory measures against joint U.S. and Israeli airstrikes that began February 28. While maritime traffic has plummeted by 90-97%, maritime intelligence confirms that Tehran is selectively granting passage to ships from friendly nations, creating a two-tiered shipping regime that favors non-combatant countries aligned with or neutral to Iran’s position.

The Permitted Nations

Maritime tracking data reveals that vessels from specific countries are being allowed to transit the strait through a carefully controlled “permission-based” system:China remains the primary beneficiary of Iran’s selective access policy. Multiple vessels including the Stellan and Nora—carrying over two million barrels of crude oil—have successfully navigated the strait, with Chinese-flagged and Chinese-owned vessels receiving priority clearance . Maritime analysts note that vessels bound for China are “more likely to be granted passage” as Iran seeks to maintain economic ties with its key trading partner while exerting pressure on Western economies .India has secured transit rights for its vessels after diplomatic negotiations. At least two Indian-flagged tankers carrying liquefied petroleum gas reached Indian ports over the weekend of March 15-16, following talks between officials. The Indian vessel Nanda Devi was among those documented arriving at Vadinar Port after receiving Iranian authorization .Pakistan has successfully transited the strait, with the Pakistani-flagged oil tanker Karachi—carrying approximately 700,000 barrels of crude oil—crossing through the Larak-Qeshm Channel near the Iranian coast .Turkey has also secured passage for its vessels. Turkish Transport Minister Abdulkadir Uraloglu confirmed that a Turkish-owned ship crossed the strait with explicit Iranian permission, highlighting Ankara’s diplomatic leverage in the crisis .Greece presents a complex case. While Greek shipping companies operate approximately ten vessels that have recently transited, analysts suggest these may be cases where Iranian authorities verified the cargo and ownership to ensure no links to U.S. or Israeli interests. These vessels appear to transit under strict scrutiny rather than blanket national authorization .

The Alternative Route

Ships from permitted nations are not transiting through the main shipping lane. Instead, they are navigating an alternative corridor through Iranian territorial waters, specifically via the Larak-Qeshm Channel opposite the Iranian port of Bandar Abbas . This route forces vessels to “hug the Iranian coastline” before emerging into international waters at the eastern end of the strait—a maneuver that allows Iranian forces to maintain physical control and inspection capabilities over all transiting vessels .Maritime analyst Michelle Wiese Bockmann noted this workaround represents “one of the first signs of permission-based transits to friendly countries,” with vessels broadcasting signals such as “CHINA OWNER_ALL CREW” to identify themselves as eligible for passage .

The Blockade Strategy

Iran’s Revolutionary Guard has reportedly established checkpoints where transit vessels undergo inspection to verify they have “no cargo or ownership linked to the United States” . Iranian sources maintain the strait is not officially closed, but that passage is denied to any vessel that could “benefit the aggressors”—referring specifically to the U.S. and Israel .The strategy appears calculated to maximize economic leverage while minimizing military confrontation. By allowing Asian and non-aligned nations to continue receiving energy supplies, Iran maintains crucial economic relationships while driving up insurance premiums and oil prices for Western economies. Brent crude has surged from $72.48 pre-war to highs of $119.50, currently trading above $103 per barrel .

The Excluded

The blockade specifically targets vessels with links to the United States, Israel, and their immediate allies. Approximately 1,000 ships remain stranded on either side of the strait awaiting clearance, while Western naval forces face the threat of mine warfare and missile attacks if they attempt to escort vessels through the main channel . Iran has deployed sea mines in the primary shipping lanes—denied by Tehran but confirmed by Washington—and has demonstrated the capability to strike vessels with missiles and drones .

Geopolitical Implications

The selective passage system represents a “smart control” strategy that differentiates between states, allowing Iran to exert pressure on its adversaries while rewarding nations that maintain neutral or supportive stances . As Tomas Alexa, senior analyst at maritime intelligence firm Ambrey, explained: “By selectively restricting access rather than completely closing the strait, Iran is signaling that it maintains operational control over the waterway and can differentiate between states” .For the countries reportedly able to pass, the arrangement provides critical energy security and commercial advantage while the global economy absorbs the shock of reduced Gulf oil exports. For Washington and its allies, the situation presents a dilemma: military efforts to reopen the strait could escalate the conflict, while accepting the selective blockade cements a new reality where Iranian authority over the waterway is tacitly acknowledged