The Middle East is currently experiencing frequent geopolitical conflicts, but the global oil market and most central banks regard them as controllable risks. Through an analysis of three scenarios, this report reveals how an escalation of risks could potentially trigger an energy crisis akin to that of the 1970s. Although the likelihood of such a scenario is currently low, should it occur, the economic consequences would be profound.
Half a century ago, turmoil in the Middle East plunged the global economy into crisis. Today, even as geopolitical tensions in the region intensify, oil markets and central banks typically view conflicts as shocks to monitor—rather than dominant factors shaping the macroeconomic outlook. A 1970s-style energy crisis does not appear imminent. However, should one occur, its impact on inflation, growth, and policy would be profound.
Based on anticipated responses in the oil market, this article outlines three broad trajectories for how a Middle Eastern shock might evolve and assesses its implications for the global economy. In the most extreme scenario, an escalation that damages energy infrastructure or critical chokepoints could lead to sustained price increases, reignite inflation risks, and force central banks to adopt a hawkish stance.
A major regional conflict escalating against energy infrastructure in places like Saudi Arabia or Iraq, or affecting critical chokepoints such as the Strait of Hormuz, would shatter assumptions about the uninterrupted flow of oil.Oil prices could soar by up to 80%. Based on early 2026 pricing, this implies an increase from $60 per barrel to as high as $108. For the global economy, this would mean slower growth, rising inflation, and a more hawkish monetary policy.
In the baseline scenario, renewed conflict centered on Iran, Iraq, or the Persian Gulf could still cause sharp but short-lived price volatility—provided the conflict does not inflict lasting damage on energy facilities. Oil prices may spike briefly before returning to baseline levels.
Limited shocks or instability away from major oil-producing regions will have little impact on physical supply or prices. The Gaza War serves as a striking and heartbreaking example: a significant geopolitical shock that left barely a trace on global oil markets.
The impact extends beyond local borders.
From surging oil prices to rerouted shipping lanes and refugee flows, what happens in the Middle East does not always stay in the Middle East. The region provides the world with three key elements: energy, capital, and trade routes.
Despite the rise of renewable energy and the shale revolution in the United States, the Middle East continues to supply energy to the world. It produces one-third of global oil, one-fifth of natural gas, and, as in the 1970s, meets 15% of total global energy demand.
Four of the world's top ten sovereign wealth funds come from the region: those of Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates. Their assets include U.S. tech companies, U.K. football clubs, real estate in Egypt, mines in Africa, and bank deposits in Turkey.
The Middle East supports global commerce through its trade corridors. The Strait of Hormuz carries one-fifth of the world’s oil flow. The Red Sea and the Suez Canal serve as crucial shortcuts for Asia-Europe trade. Projects such as the India-Middle East-Europe Economic Corridor, Iraq's 'Road to Development,' and China’s 'Belt and Road Initiative' are expected to expand this network.
All of this underscores that the Middle East remains vital to global stability, energy security, and the world economy.
The History and Evolution of Conflicts in the Middle East
The history of the Middle East dates back thousands of years. However, the roots of its current geopolitical landscape lie in the post-World War II order, particularly from 1948 onward. Since then, conflicts in the region have gone through two distinct phases.
The first phase lasted from 1948 to 1979, during which regional instability primarily revolved around the Arab-Israeli wars. The establishment of Israel in 1948 created tensions with its Arab neighbors, leading to wars in 1948, 1956, 1967, and 1973.
During this period, as colonial powers like Britain and France began to withdraw, U.S. interests and involvement grew. Initially, the U.S. relied on its so-called 'twin pillars' in the region—Iran and Saudi Arabia—to maintain stability. However, two events in 1979 changed this dynamic, marking the beginning of the second phase.
First, the 1979 Iranian Revolution turned Tehran from an ally of Israel into a fierce adversary. Second, the Camp David Peace Accords between Israel and Egypt neutralized the largest Arab state. Since then, no Arab nation has engaged in war with Israel.
Instead, conflicts shifted to engagements between Israel and emerging radical organizations supported by Iran. These groups include Hezbollah in Lebanon (which emerged after Israel's 1982 invasion of Beirut) and Hamas in Palestinian territories (founded during the First Intifada in 1987). Iran’s 'Axis of Resistance' was fully formed with the inclusion of Iraqi militias (established after the U.S. invasion of Baghdad in 2003) and Yemen’s Houthis (who rose to prominence after capturing the capital in 2014).
Today, the world may be witnessing the end of this second phase. Following the October 7, 2023 attack, Israel has significantly weakened both Hamas and Hezbollah. With Bashar al-Assad’s fall in Syria, Iran lost a key ally. During the 12-day war, Iran’s nuclear infrastructure and military capabilities were damaged in Israeli strikes assisted by the U.S.
As the second phase concludes, a new chapter is set to begin, with new players emerging and conflicts likely to intensify.
Changing Alliances and New Hotspots
Today’s Middle East is composed of four blocs vying for control, with bloody frontlines and high stakes involved.
Iran and its Axis: This coalition includes Iraqi militias, Hezbollah in Lebanon, Hamas in Gaza, the Houthis in Yemen, and several smaller organizations. Tehran uses them to project influence and establish forward defenses. Continuous U.S. sanctions have severely impacted Iran's economy but have not affected its ability to continue supporting regional partners. Since 2023, Israel has significantly weakened this axis primarily by targeting the leadership of Hamas and Hezbollah. Despite launching maritime attacks in the Red Sea, the Houthis remain largely unscathed. Iran views the weakening of its forces as a temporary setback but is concerned about its ability to rebuild the axis.
Israel and the UAE: In 2020, the UAE signed the Abraham Accords with Israel, normalizing relations. Following this, Israel launched the Gaza War in response to the Hamas attack on October 7, 2023. This war weakened both Hamas and Hezbollah, which the UAE supported. However, Israel’s de facto annexation of the West Bank and indiscriminate violence in Gaza have provoked dissatisfaction in Abu Dhabi. Nevertheless, the UAE remains committed to maintaining this relationship. For Israel, it sees an opportunity to further weaken Iran and its nuclear program while expanding the scope of the Abraham Accords to include countries like Saudi Arabia, bypassing the Palestinian issue.
Saudi Arabia: Riyadh is focused on its economy and the 'Vision 2030' plan, which requires regional stability. It restored diplomatic ties with Iran in 2023, reached a ceasefire with the Houthis, and actively mediated other conflicts. An agreement normalizing relations with Israel is unlikely unless it includes a pathway to establishing a Palestinian state. Tensions with the UAE have escalated, peaking in Yemen where the two countries support opposing sides.
Turkey-Qatar Alliance: During the 2011 **** protests, they supported Islamist candidates in Egypt, Syria, and Libya, including the Muslim Brotherhood. Turkey supported Qatar during the blockade led by Saudi Arabia and the UAE in 2017, and Qatar reciprocated with financial support in 2018. The fall of Assad in Syria was a victory, though the decline of political Islamism has weakened their regional plans. Importantly, both countries currently maintain good relations with Washington.
These four blocs are competing in four hotspot areas. Any one of these could erupt at any time:
Gaza: After two years of war that flattened the area, Hamas and Israel reached a ceasefire in October 2025. However, Israel continues periodic strikes on the enclave, and progress toward the next phase of the ceasefire has been minimal. Hamas must disarm, and Israel must withdraw its troops. Neither side intends to comply with these terms. Without progress, the risk of renewed conflict remains high.
The Levant: Israel’s near-daily strikes on Lebanon highlight that a ceasefire does not mean peace. Domestically, Lebanon's government faces a choice: attempting to disarm Hezbollah and risking civil war or avoiding the issue and risking renewed conflict with Israel. Scheduled parliamentary elections in May increase the likelihood of delays. Israel also frequently invades Syria, though Damascus seems reluctant to escalate tensions. Ahmed Sharaa, who took office in December 2024, is struggling to assert full control over the country amid sporadic sectarian conflicts. His priority is economic recovery: seeking to lift sanctions (with U.S. President Trump seemingly supportive) and attract investment. Despite some progress, with the Syrian pound strengthening, the economic situation remains fragile.
The Red Sea: In December 2023, Houthi attacks on passing ships forced shipping companies to avoid the narrow maritime passage connecting the Red Sea with the Gulf of Aden and the Indian Ocean—the Bab el-Mandeb Strait. Recent tensions have eased following a temporary ceasefire between the U.S. and the Houthis in May last year, with the Houthis pledging restraint if the Gaza ceasefire holds, prompting shipping companies to consider returning. Nonetheless, shipping traffic through the region has yet to return to pre-war levels and is unlikely to do so given the potential for renewed conflict.
Iran-Israel: After months of missile exchanges, Israel launched an unprecedented 12-day war in June of last year, damaging Iran's nuclear program, causing nearly a thousand deaths, and exposing both Iran’s vulnerabilities and Israel’s infiltration capabilities. However, Iran’s leadership framed it as an act of resistance: “Our worst-case scenario occurred, and we are still standing. We even showed the Israelis that our missiles can reach them,” an Iranian official told us. Importantly, Iran’s nuclear program was not destroyed, its ballistic missiles remain a threat, and Tehran may redouble efforts to rebuild its proxy networks. Predictive markets indicate a roughly 40% chance of another direct strike by the first half of 2026.
Domestic politics will also shape regional conflicts. The deterioration of Iran’s economic conditions has sparked mass protests beginning at the end of December last year and early January this year. The prospect of regime change in Tehran aligns with Israeli objectives, though it remains unclear whether this would be sufficient to avert another war. Meanwhile, Israel is set to hold parliamentary elections by October 2026.
The Gulf Arab states find themselves caught in the middle. Their primary security guarantor, the United States, supports Israel, which is now viewed by most Gulf countries as the main threat. They have managed their traditional adversary, Iran, through containment and dialogue. However, Tehran has made it clear that if the war with Israel escalates, it may play its final card: targeting regional energy infrastructure or closing the Strait of Hormuz.
Geopolitically, the stakes are extremely high. Economically, the damage to date has been localized rather than global. Over two years of conflict in the Middle East, the closer one gets to the epicenter, the higher the costs.
Economic Costs and Military Balance
The war has devastated Gaza. Israeli strikes have damaged or destroyed over 90% of residential buildings. The World Bank estimates that Gaza’s economy contracted by 83% in 2024, with an additional 12% contraction in the first quarter of 2025.
Israel’s output is 5% below its pre-war trajectory. The war may leave lasting scars. Some reservists will not fully return to the labor market. Brain drain is pushing talent abroad. For the foreseeable future, defense spending will rise. Foreign direct investment has dropped from 5% of GDP before the war to 3% post-conflict.
Egypt is bearing losses from the Suez Canal. Prior to the war, Egypt earned approximately $9 billion annually from the waterway. With traffic halving over the past two years, revenues have decreased by billions of dollars.
The strongest players in the Middle East region are the United States and Israel. With virtually unlimited access to American weapons and military equipment, the Israeli military is unmatched, granting it significant advantages and escalation dominance. Israel’s multi-layered missile defense system has played a critical role in protecting it from rocket attacks from Gaza and Lebanon, as well as recent Iranian ballistic missile strikes, though it is not infallible.
On the other hand, Iran’s conventional arsenal is constrained due to decades of arms embargoes and sanctions—despite its ambitious ballistic missile program, which has enhanced the scale, diversity, and precision of its armory. The limitations of its conventional forces have driven Tehran to heavily invest in building relationships and networks across the region, forming its 'Axis of Resistance.' Since 2023, Israel’s strikes on this axis have significantly weakened it, leaving Tehran in a vulnerable position.
The Gulf Arab states occupy a middle ground. They invest heavily in armed forces—primarily through the purchase of U.S. weapons to strengthen ties with Washington—typically focusing on expensive equipment such as fighter jets and advanced air defense systems. The UAE has diversified its military relations, also establishing connections with China and European countries. Saudi Arabia and the UAE are investing in domestic systems, though still limitedly. To date, their armed forces have been deployed mainly within the region and in Africa, unable to match Israel’s superior capabilities.
This asymmetry has not brought stability; rather, it has made coercion outweigh compromise and normalized the use of force, gradually eroding previous red lines and locking the region into a cycle of asymmetric violence.
Oil Market Scenario Analysis
To date, several of the worst geopolitical scenarios in the region have materialized, but their impact on oil prices has been limited or even nonexistent. Looking ahead, potential shocks in the Middle East can be categorized into three types based on their expected influence on oil prices.
Scenario One: No Impact
Most geopolitical shocks do not affect oil prices, especially when they occur far from Iran, Iraq, and the main oil fields of the Gulf region. Economic and oil market impacts are usually minimal. Such cases include:
The Future of Gaza: Violations of ceasefires have become routine, with little prospect for lasting peace. Whether the war reignites, the current unstable status quo persists, or large-scale cross-border displacement occurs, humanitarian consequences may be severe, but the impact on the global economy will remain small.
The Red Sea: Attacks by the Houthis have further militarized regional waters, achieving strategic gains including global attention and increased regional support. This positions them to easily resume operations when opportune, making any return by shipping companies inherently risky. Regardless of whether the Houthis allow shipping to return to normal levels, oil flows will hardly be affected.
Lebanon and Syria: Whether at war with Israel, moving toward normalization, facing government instability, embroiled in internal conflict, or suffering the potential consequences of escalating Turkish-Israeli rivalry in the region, oil prices are unlikely to react.
Domestic instability in broader regions, such as the possibility of unrest in Jordan or Egypt, is also unlikely to shake markets, as these countries import rather than produce oil.
Even in oil-rich countries, not all disruptions are significant. Iran is beset by internal and external challenges. The impacts of economic difficulties and environmental crises have been exacerbated by sanctions. Threats from the Trump administration and Israel have intensified political and social pressures, increasing the strain on Tehran. Nevertheless, protests that do not threaten the leadership, assassinations that do not involve the highest echelons of power, or minor violations of its unstable ceasefire agreement with Israel are unlikely to affect oil production. This was evident both on the eve of the 12-day war and in its aftermath.
In that conflict, Israel targeted some of Iran's energy infrastructure, including the country’s oldest refinery. These strikes were significant as they affected Iran's domestic fuel supply, but their impact on oil prices was limited because crude exports continued.
Iraq, OPEC’s second-largest oil producer (after Saudi Arabia), has long been a stage for US-Iran rivalry, yet with no noticeable effect on oil. As long as southern energy facilities remain undamaged, attacks by Iranian-aligned proxies or Tehran itself on US military bases, Israeli strikes against paramilitary forces near Iran, or assaults on northern oil and gas fields are unlikely to rattle the market.
This scenario of geopolitical escalation that falls short of disrupting the oil market is considered the second most likely situation. A more probable outcome is that tensions escalate further.
Scenario Two: Temporary Surge in Oil Prices
The second category, and the one deemed most likely, includes scenarios where geopolitical events in Iran, Iraq, or major Gulf oil producers lead to a temporary spike in oil prices. For example:
Trump may have brokered a ceasefire between Iran and Israel after the 12-day war, but the underlying drivers of the conflict have not disappeared. At some point, another round of conflict seems highly probable. If hostilities resume but remain limited, without escalating to strikes on regional energy infrastructure, any spike in oil prices is likely to be temporary. If the Houthis restart operations in the Red Sea in support of Iran, the impact on regional shipping could be more prolonged.
Iran’s Supreme Leader Khamenei is advanced in age. The war highlighted the threats to his personal safety, and the latest wave of protests underscored how fragile his grip on power is. The assassination or overthrow of Iran’s Supreme Leader would constitute a major geopolitical shock that could disrupt oil prices, but the impact would likely be short-lived. The government would quickly appoint a successor and rally around him to ensure continuity.
Precise strikes on oil facilities in the Gulf or Iraq, even if causing production disruptions or even large-scale damage, would have limited price effects as long as production facilities can be swiftly repaired and brought back online. The 2019 attack on Saudi oil facilities, which temporarily took half of its output offline, is a recent example.
The most likely scenario involves a combination of such events occurring simultaneously. The Iran-Israel ceasefire is fragile, with influential factions in Israel’s political sphere supporting continued conflict, and no agreement reached on Iran’s nuclear program. Clear threats to Iran’s leadership, and potential retaliation by Tehran should these threats materialize, indicate that escalation remains a real risk.
Scenario Three: A Sharp and Prolonged Surge in Oil Prices
In this type of scenario, significant geopolitical shocks have a pronounced impact on energy prices.
Israel may strike Iran's oil facilities as part of an escalation in another round of direct attacks. If this happens, Iran could retaliate by targeting oil fields in the Gulf region, something it has previously threatened to do. Should the extent of the damage prevent a swift resumption of production, oil prices would be affected over the long term.
For years, Iran has repeatedly threatened to close the Strait of Hormuz — through which one-fifth of the world’s oil supply passes — whenever under increased pressure. It has never acted on these threats, but if cornered in a new war, Tehran might ultimately follow through, even at the expense of its own exports. Cutting off one-fifth of global supply would have a substantial and lasting impact on oil prices.
What conditions would prompt Iran to take this step? It may require the simultaneous fulfillment of three conditions:
The United States strikes Iran amid widespread domestic protests and mounting pressure threatening the regime’s survival. Tehran may tolerate cyber warfare, blockades, or disruptions that weaken its security network. However, when internal dissent coincides with foreign aggression, leaders may respond fiercely — betting that external confrontation can suppress internal instability.
Iran retains its ability to strike back. Tehran’s capabilities have diminished over the past two years — fewer proxies, depleted missile stockpiles, and damaged air defenses. If U.S. strikes spare its remaining arsenal or fail to trigger a coup, willingness and capability could recombine into a destructive force.
Decision-makers remain united. Currently, Tehran is in shock — worried about what might happen next and caught in internal debates over whether to concede and deal with Trump or maintain a firm stance. If this paralysis persists, it could undermine their ability to respond effectively.
Other scenarios that could lead to a sharp and prolonged surge in oil prices include strikes by Iran or Israel against Iraq’s energy infrastructure. Iraq exports approximately 3.5 million barrels per day, accounting for about 3% of global oil supplies. Most of this flows through a southern port into the Gulf, with the remainder transported via pipelines to Turkey. An attack on southern facilities could take a significant portion of Iraq’s oil offline.
Political instability and discontent in the Middle East are longstanding issues. Today, many drivers of the 2011 **** — poor governance, lack of opportunities, and wealth inequality — persist. Large-scale protests in oil-producing nations like Iraq, or less likely, a Gulf state, could destabilize politics and disrupt oil and gas production.
These will be significant shocks. The region supplies about one-third of the world's oil and one-fifth of its natural gas. Taking a portion of its production offline will result in price shocks far greater than the supply loss itself. It is not unimaginable that oil prices could nearly double, as happened after Iraq invaded Kuwait in 1990.
This is the least likely scenario to occur. Even if conflict erupts, all parties seem to be avoiding strikes on energy facilities, partly out of self-interest and partly to avoid angering Trump, who seeks lower oil prices.
How to quantify the response of oil prices to supply shocks
A loss of oil supply will push prices higher — an inevitable outcome according to the law of supply and demand. The harder question is determining the extent of the impact. Past disruptions, academic studies, and prediction markets can shed light on this. The conclusion: for every 1% loss in supply, prices rise by 2% to 6%, with a midpoint of 4%.
Applying this to some potential risks: Iran, a major oil producer, faces civil unrest and possible strikes from the U.S. or Israel. It supplies about 3% of global crude oil production, so disruptions there could lead to significant price shocks. At current prices, even before accounting for a risk premium, the risk of a full-scale strike amounts to approximately $7 per barrel.
If the war spreads from Iran to the entire Middle East, more oil supplies could be at risk. A disruption in the Strait of Hormuz would choke off about one-fifth of global oil flows. While such a shock is unlikely, it would drive oil prices from $60 per barrel at the start of 2026 to around $108.
To measure the response of oil prices to supply shocks, it is useful to study historical unexpected events. To filter out noise, each event in the sample must be unforeseen, affect supply rather than demand, and have an immediate impact on prices. The following three cases meet these criteria. They provide informed rough estimates rather than an exhaustive list.
The September 14, 2019 attack on Saudi oil facilities: Drones operated by the Houthis struck Saudi oil infrastructure, immediately taking 5.7 million barrels per day offline, equivalent to about 5% of global oil supply. As a result, oil prices rose by about $9 per barrel to $69, a 15% increase. This implies a price response multiplier of approximately three times the scale of the disruption.
The April 2020 OPEC+ agreement brokered by Trump: Amid the pandemic, with oil prices falling to $25 per barrel, Trump mediated between Russian President Putin and Saudi Crown Prince Mohammed bin Salman to curb oil supply. OPEC+ ultimately cut production by 10 million barrels per day, or about 10% of global supply. Oil prices rebounded to $34 per barrel, a 36% increase. This indicates a price response multiplier of 3.6 times the scale of the reduction.
The October 2022 OPEC+ production cut: Less than three months after then-U.S. President Biden visited Saudi Arabia to request increased production following the Russia-Ukraine conflict, the country and its OPEC+ allies took the opposite action. On October 5, OPEC+ agreed to cut production by 2 million barrels per day. Market expectations had anticipated a reduction of about 500,000 barrels per day. Thus, the unexpected reduction amounted to 1.5 million barrels per day, or about 1.5% of global supply. Prices rose by $6 per barrel to $94, a 6.8% increase. This suggests a price response multiplier of 4.5 times the scale of the cut.
Academic research estimates that the multiplier effect of prices in response to supply shocks ranges between 2 and 6 times. These studies also help elucidate the underlying mechanisms. Supply disruptions create shortages: consumers wish to use more oil than is available, driving prices higher. Higher prices attract new supplies but also erode some demand. The post-shock price level depends on the sensitivity of both demand and supply to higher prices.
A third way to measure the oil price response to supply disruptions is by observing how prediction markets price expected interruptions. The June Iran-Israel conflict provides a case in point. Prediction markets priced an anticipated global oil supply loss of about 8% at the peak of the conflict, reflecting the risk of a closure of the Strait of Hormuz. However, actual oil prices surged by approximately one-fifth during the same period. This implies a price response multiplier of roughly 2.5 times the scale of the expected supply shock.
Other factors also influence the price response to supply shocks, including inventory levels and the duration of the disruption. These elements can alter the response multiplier within a range and sometimes may even push it beyond its typical boundaries.
Who wins and who loses?
In the worst-case scenario, closing the Strait of Hormuz would eliminate about one-fifth of global oil supply. Such an abrupt shortage would overwhelm buffers, forcing prices to spike sharply. Estimates based on historical data and other studies suggest that crude oil prices could surge by 80%. Starting from $60 per barrel in early 2026, this shock would push crude prices to around $108 per barrel.
The economic damage caused by oil prices exceeding $100 per barrel might be less severe than in past oil crises for two reasons. First, economies are less oil-intensive than they used to be. In the United States, the amount of oil required to produce a unit of GDP has fallen by about a quarter since 2011. Second, inflation means that $100 today buys fewer goods and services than it did a decade or two ago. Nevertheless, this remains a significant shock, and its impact will vary across different regions of the world.
Net oil exports from the United States indicate a reduced dependency on Middle Eastern oil.
For the world’s largest economy, oil shocks no longer pack the punch they once did. Shale oil has transformed the United States from a major importer during the Iraq War era into an exporter. This shift will cushion economic growth when crude prices soar, meaning the impact on the U.S. will likely be close to neutral.
This does not mean rising oil prices will be welcomed. A price spike will benefit a segment of the U.S. economy—namely, oil producers. For other businesses, energy represents a cost they must absorb. For consumers, higher fuel bills mean less cash available for other expenditures.
Plugging an oil price of $108 per barrel into Bloomberg's SHOK model suggests that U.S. inflation could rise to around 4%. Central banks typically overlook such shocks, but the risk of unanchored inflation expectations may force them to adopt a more hawkish stance. A new Federal Reserve Chair will face this trade-off, especially with potential pressure from Trump to cut interest rates.
The United States may absorb higher energy prices through inflation without sacrificing growth. Other major economies are not so fortunate.
For the Eurozone, using the SHOK model reveals that an oil price of $108 per barrel would push inflation above 3% and reduce growth by approximately 0.5 percentage points by 2026. This would place the European Central Bank in a difficult position: to cut interest rates to support growth or raise them to curb inflation.
For developing economies, how oil shocks impact their currencies is crucial. Exchange rates affect inflation, growth trajectories, and consumer confidence. Rising oil prices benefit oil-producing nations such as Colombia, Nigeria, and Russia, at the expense of importers like India, Indonesia, and South Korea.
The Middle East is home to some of the world’s largest oil exporters: Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait. These economies typically benefit from rising oil prices. However, if the price surge results from disruptions to their own exports, these windfall gains could evaporate.
For some Middle Eastern countries, the shock will be a double blow. Rising geopolitical risks threaten external security, while reduced oil revenues undermine domestic stability. Shrinking income erodes the social contract based on “welfare in exchange for compliance” funded by oil revenues. External pressures will collide with internal vulnerabilities, amplifying the risk of political instability.
Impact on Regional Energy Companies
For regional energy companies such as Saudi Aramco, Abu Dhabi National Oil Company (Adnoc), and QatarEnergy, Bloomberg Industry Research evaluates that the impact of Middle East conflicts depends not only on trends in oil and gas prices but crucially on whether production and exports remain uninterrupted. When geopolitical tensions drive prices higher without disrupting Gulf supplies, the impact is clearly positive.
At current production levels of around 10 million barrels per day, Saudi Aramco's operational scale means that every $10 change in oil prices results in an annual revenue increase (before fiscal take) of approximately $35 billion to $40 billion, indicating a substantial boost in cash flow as long as production and exports remain undisturbed.
For Abu Dhabi National Oil Company (Adnoc), which currently produces about 3.6 million barrels per day, a similar price movement translates into an annual revenue increase of approximately $13 billion—a smaller but still significant amount. QatarEnergy, which supplies about one-fifth of the world’s liquefied natural gas, is less sensitive to short-term price spikes because most of its sales are long-term contracts linked to oil prices. However, as long as exports continue, higher oil prices will eventually be reflected in contract repricing over time, benefiting the company.
When price surges are driven by internal disruptions within the region, conditions deteriorate. Damage to production facilities, export terminals, or shipping routes—including the Strait of Hormuz—can significantly reduce actual sales even amid a global oil price spike. In such scenarios, even if crude oil prices exceed $100 per barrel, there is little comfort if tankers or LNG carriers cannot transport, insure, or process payments.
Even a brief disruption often leaves a lasting impact on the valuation of these companies, as investors reassess security and infrastructure risks. During periods of stress, governments tend to rely more heavily on national energy companies, thereby diluting returns for minority shareholders. Middle East conflicts could push energy prices higher — however, for regional producers, this is positive only if oil and gas continue to flow uninterrupted.
Conclusion
Since the Hamas attack on Israel in 2023, Middle East geopolitics and global oil prices have generally followed divergent trajectories. Should a worst-case scenario occur, the firewall protecting energy markets from geopolitical influences may collapse — the specter of the 1970s could once again haunt the world. For now, Middle East geopolitics is expected to remain highly volatile, while energy markets are relatively insulated.
Editor/Doris
