Economists Warn of Wider Fallout as Israel-Iran Conflict Enters Fourth Day

As the US-backed conflict between Israel and Iran entered its fourth day, economists warned that the impact could extend far beyond the Middle East, raising the risk of higher inflation, tighter credit markets and slower growth, particularly in energy-importing economies.

Global markets have already reacted sharply. Oil benchmarks surged after disruptions to traffic through the Strait of Hormuz, a vital chokepoint that handles about 20 percent of global seaborne oil trade. Spot crude premiums climbed to multi-year highs as tanker movements declined and insurers pulled war-risk cover, highlighting mounting supply concerns.

Equity and credit markets also came under pressure. Major European stock indexes fell, credit spreads widened and investors moved funds into traditional safe havens such as gold and government bonds. In credit markets, corporate default premiums rose as geopolitical tensions intensified.

Ratings agency Fitch said most Middle Eastern sovereigns have enough headroom to withstand a short conflict that does not escalate. However, it cautioned that prolonged hostilities or serious damage to energy infrastructure could pose risks to sovereign credit profiles.

“The attacks launched by Israel and the US on Iran on Feb. 28 have already had a greater impact than those of June 2025,” Fitch said. It expects the conflict to last less than a month, though it warned that Iranian attacks and those by allied groups could intensify in the near term.

Fitch noted that material damage to Gulf Cooperation Council energy export infrastructure would be the most direct channel for ratings pressure. It assumes the Strait of Hormuz will remain effectively closed for the duration of the conflict, whether due to physical threats or insurance constraints. While Saudi Arabia and the UAE have alternative pipeline routes, countries such as Bahrain, Kuwait and Qatar lack similar flexibility, and Iraq’s exports rely heavily on the strait.

Moody’s also flagged heightened geopolitical and energy risks. It said marine traffic through the waterway has slowed significantly, with insurers withdrawing coverage and several regional ports suspending operations. Although core energy infrastructure has not been directly targeted, the uncertainty has pushed oil prices higher.

Moody’s baseline scenario assumes a relatively short conflict, with navigation through the strait resuming within weeks. A prolonged disruption, it warned, would drive sustained oil price increases, deepen global risk aversion and raise refinancing risks for companies in energy-intensive sectors.

Analysts at Julius Baer described oil as a geopolitical “fever thermometer,” reacting quickly to rising tensions. They said the broader economic consequences will depend on whether oil and gas flows through the Strait of Hormuz are restored soon. Prolonged disruption could expose up to one-third of global oil supply if the conflict spreads to other Gulf producers, raising the stakes for global markets and policymakers alike.