The U.S.-Israeli war with Iran has unleashed a cascade of economic disruptions that extend well beyond the Middle East. Iran’s closure of the Strait of Hormuz — through which approximately one-fifth of the world’s oil supply flows — has produced what the International Energy Agency describes as the largest global oil supply shock on record. The World Bank has warned that the conflict is hitting the global economy "in cumulative waves: first through higher energy prices, then higher food prices, and finally, higher inflation."
With peace talks at an impasse as the conflict enters its third month, the burden is falling hardest on Global South economies, which face rising import costs, limited energy supplies, constrained fiscal space, and deepening food insecurity.
Global South experts Shuva Raha, Alicia Nicholls, and Ivory Kairo discuss how the war is driving strategic cooperation and impacting Caribbean and African countries.
Driving Strategic Cooperation to Advance National Interests
Raha: The U.S.-Iran war has seen unpredictable, asymmetric actions that have impacted countries around the globe. These moves are exposing new vulnerabilities in existing systems, such as maritime trade, and opening new opportunities for context-specific policymaking and coalitions.
For instance, Iran responded to U.S. and Israeli attacks by attacking its U.S.-aligned Gulf neighbors, marking them as co-belligerents due to the U.S. attacks originating from bases within their territories. Iran has crippled their energy and logistics infrastructure, including ports and airports, and blocked the Strait of Hormuz.
Iran’s strategy has expanded the impact of its counterattack to the world. It forced Qatar, Bahrain, Kuwait, and the UAE to declare force majeure on many long-term oil and gas export contracts. The sudden and extreme supply and price shocks, including of petrochemical derivatives, are hurting U.S. allies such as Japan, South Korea, Italy, France, Germany, and the United Kingdom. In a move that will have a far-reaching outcome for the Gulf and global energy supplies, the UAE has left the Organization of the Petroleum Exporting Countries to chart its own energy future.
Iran is also leveraging information technology and the digital economy, damaging major data centers in the region, and threatening to sever the cable network under the strait that carries much of the internet traffic between the Gulf, Asia, and Europe. Meanwhile, Tehran has utilized next-generation technology stacks, including advanced satellite data and AI, as well as U.S.-owned social networks, to track, report, and influence events and opinions in real time.
Multilateral forums have been ineffective at resolving the conflict. In April, Russia and China vetoed a United Nations Security Council resolution that would have allowed impacted countries to secure passage through the strait by military means. Now, a somewhat porous U.S. blockade is countering Iran’s iron grip over the strait by capturing its tankers.
Faced with a prolonged energy and resource crunch, several countries have maintained their lines of cooperation with Iran despite U.S. sanctions, including China, India, and Russia. China, Iran’s largest trading partner, is still buying 90% of its oil in Renminbi — even as its clean energy exports recorded an all-time high in March, with countries scrambling to ramp up renewables-based electricity. India has provided medical aid to Iran and is also buying Iranian energy, while negotiating a trade agreement with the United States.
Many countries are also building new international instruments to secure their national interests. For instance, after insurers curtailed war-risk coverage for merchant tankers, India developed a maritime insurance pool with a sovereign guarantee of about $1.5 billion for Indian flagged, controlled, and destined vessels.
The U.S.-Iran war will leave deep economic scars on a world reeling from a series of systemic shocks. It is therefore heartening to see various countries exercise greater agency to define and secure their national interests — and, in doing so, set the foundations of a new world order.
Caribbean Economies Face Inflation and Uncertainty
Nicholls: Though geographically distant, a protracted U.S.-Israeli war with Iran could have significant economic consequences for the Caribbean region. Disruptions to shipping through the Strait of Hormuz have already increased global oil price volatility.
The impact on the region will vary. While oil-producing Caribbean economies may see some fiscal gains, their populations still face higher fuel and food prices. For oil-importing Caribbean economies, the most immediate effect will be inflation from rising fuel and fertilizer costs, which will place additional strain on households. Indeed, according to the International Monetary Fund, tourism-dependent Caribbean economies are likely to be among the hardest hit. This represents yet another external shock, just a few years after the COVID-19 pandemic.
Higher energy costs would also increase transportation and operating expenses across key sectors, including tourism. If the United States experiences an economic slowdown due to the conflict, it could dampen U.S. travel demand to the region, which is particularly concerning for countries that rely heavily on the U.S. market, as well as reduce remittance flows. There are already signs of strain in the global aviation sector, with some European airlines indicating potential flight reductions due to rising jet fuel costs.
Some countries, such as Barbados, have introduced temporary buffers in their budgets to shield consumers from oil price shocks, but these measures are being implemented within constrained fiscal environments.
These dynamics have implications for U.S. interests. Economic stability in the Caribbean has always been a key security interest for the United States, so any economic downturn in the region could lead to greater outward migration. Additionally, it could lead to weaker trade demand as businesses might shift to cheaper sources of products, and households cut down on non-essential purchases.
Africa Faces Energy Challenges and New Opportunities
Kairo: The Iran war is creating major ripple effects across the globe, with Africa facing both risks and opportunities. In the short term, the impact is largely negative because many African countries depend on imported fuel, fertilizer, and food inputs. Disruptions to Gulf energy routes have led to rising global oil and shipping prices, higher transport costs, and more expensive basic goods. Countries such as Kenya, Ghana, Senegal, Rwanda, and Ethiopia are especially vulnerable, as rising fuel prices quickly strain households, businesses, and public finances.
The crisis also places pressure on African currencies and foreign exchange reserves, since oil imports are paid for in U.S. dollars. Higher fertilizer costs may reduce agricultural productivity and worsen food insecurity in vulnerable regions. The tourism and aviation sectors could also suffer from higher jet fuel prices and disrupted travel routes.
At the same time, some African economies may benefit. Oil-exporting states such as Nigeria, Angola, Algeria, Libya, Gabon, and the Republic of Congo could benefit from higher crude prices and stronger export revenues. As buyers look for alternatives, African producers may attract new demand for oil and gas. This may also encourage investment in refining capacity, storage infrastructure, and domestic energy security.
Diplomatically, African states may gain leverage as global powers seek reliable new partners. While the immediate effects are difficult, the crisis may push Africa toward greater energy diversification, stronger resilience, and improved bargaining power in global markets.