The framework agreement between the United States and Iran creates the conditions for an end to the outbreaks of violence and the crippling disruption of energy supplies and trade in the Persian Gulf. But don’t expect economies around the world to simply pick up where they left off before the United States and Israel began bombing Iran on February 28.
The war has set in motion changes that will be difficult to reverse.
The global energy order is being reshaped.
The imminent stoppage of oil and gas deliveries from the Middle East and the rise in prices are leading to a shift in power. Energy producers from the Gulf to the Americas are struggling to maintain or expand their dominance, and customers are struggling to reduce their dependence and secure their supplies.
As a result, the energy market is changing, the energy mix is changing and the energy players are changing.
The enormous vulnerability of countries in Asia, Europe and elsewhere that rely on imported energy is driving the search for alternatives. In some countries, such as South Korea and Japan, this has led to increased use of dirtier fuels such as coal.
But in the longer term, this energy shock – the second in just four years – is likely to accelerate the transition to renewables such as solar, wind and nuclear power.
Improvements in the technology and efficiency of electric batteries make the shift more feasible than when Russia’s invasion of Ukraine in 2022 triggered a global energy shock, said Daan Walter of Ember, an energy research group in London.
In many places, for example, electric vehicles are becoming increasingly affordable. And in April, wind and solar energy generated more electricity than gas worldwide for the first time.
“This is a big turnaround,” Mr. Walter said. “So what was perhaps hardly competitive five years ago is now almost significantly cheaper.”
Investments in renewable energy have also become a better choice and promise returns in two years rather than 30, he said.
The relationships between producers are also changing. The war increased tensions between the United Arab Emirates and Saudi Arabia and prompted the Emirates to withdraw from the OPEC Plus oil cartel. The impact of this shift will only be fully felt once oil production in the region picks up again. But a weakened Organization of Petroleum Exporting Countries could increase volatility in oil markets.
The split has also encouraged the Saudis to move closer to Russia. Russian President Vladimir V. Putin called Saudi Arabia a “guest of honor” at an economic forum in St. Petersburg this month.
Russia, the second largest producer of crude oil and gas after the United States, was strengthened by the war in other ways too. The Trump administration temporarily lifted sanctions imposed on Russia, allowing Moscow to increase profits from its oil exports as its economy struggles.
Across the Atlantic Ocean, Brazil, Venezuela, Colombia, Argentina and Guyana are expanding their oil production capacity as the world looks for alternative suppliers.
China is a big beneficiary.
The push to expand and diversify energy networks will continue long after the war is over. And China stands to benefit most from the expected renewable energy boon.
The company is leagues ahead of the rest of the world in the manufacture of wind turbines, high-voltage cables, transformers, solar panels, batteries, software to control energy flows and much more.
China’s increasing role in ensuring reliable energy supplies to other countries increases its strategic influence and importance.
“China appears to be a clear winner,” concluded analysts at Wood Mackenzie, a global energy consultancy.
The Trump administration’s aggressive push to halt renewable energy projects — and even pay companies to decommission wind farms — means the United States is essentially withdrawing from this global competition, ceding industrial and technological advantage to its biggest rival.
The economic benefits are compounded by geopolitical ones. The war has deepened the wedge between the United States and its longtime allies in Europe and offered China another opportunity to expand its role as an international leader.
It will be difficult to restore trust.
It is unclear whether shipping traffic will ever again flow freely through the Strait of Hormuz – the only sea route for transporting oil, natural gas and other goods from the Persian Gulf.
Iran has pushed to impose fees on ships passing through the narrow waterway, although such a plan could violate international agreements. Even if new payments are not codified, Iran has shown it can disrupt trade at any time, increasing risks and costs.
“I think the Strait will never return to the security of free passage that we are used to,” said Maurice Obstfeld, former chief economist at the International Monetary Fund.
Confidence in peace, stability and growing prosperity in the region has also been shaken.
“The dynamism of the Gulf economies could be affected by the vulnerability they have shown,” Obstfeld said, and that “increases Iran’s influence in the region.”
Iran has hurled drones and missiles at Kuwait, Qatar, Saudi Arabia, the Emirates and other neighbors. Damage to Qatar’s natural gas fields was extensive, affecting 17 percent of the country’s capacity to export liquefied natural gas. A petrochemical complex was bombed in Saudi Arabia.
For the Emirates, which promotes itself as a global financial center, commercial center and tourist attraction, attacks on its five-star hotels, data complexes and a nuclear facility could deter visitors and investors.
As for the United States, Mr. Trump’s decision to provoke a war with Iran, coupled with his chaotic policymaking, has further undermined confidence in Washington’s willingness and ability to maintain global order and trade.
“The U.S. capacity as a military power has once again proven to be limited,” Obstfeld said. And Iran’s continued resistance “is a serious blow to global trust in the United States as a provider of security.”
A primary mission of the U.S. Navy for decades has been to ensure freedom of navigation on the seas, said Mark Blyth, a political scientist at Brown University. However, Iran’s success in continuing to block shipping has shown that, despite all its might, the United States cannot keep the seas open and free.
The economy was set on a path of slower growth and higher prices.
When World Bank economists began reviewing the data earlier this year, they were pleasantly surprised. “We started thinking about raising our forecasts between January and February because things were looking so good,” said Indermit Gill, the bank’s chief economist. “Inflation went down, growth increased, trade had kind of taken it to the extreme and was still holding.”
No longer. The bank has just revised its economic outlook and lowered its forecast. It now expects global growth to fall to 2.5 percent this year from 2.9 percent in 2025.
Inflation is also starting to roar. In the United States, it rose for the third month in a row, reaching an annual rate of 4.2 percent in May. And instead of planning for the next rate drop, Wall Street expects the Federal Reserve to raise rates at least once this year. Last week the European Central Bank raised interest rates to 2.25 percent. “The war in the Middle East is creating inflationary pressures,” the bank said.
Higher interest rates have serious longer-term implications for both rich and poor countries, which have already accumulated enormous national debts and are using a growing portion of their revenues simply to pay interest costs.
These fiscal pressures will only increase as governments offer help to households struggling with higher energy prices and increase military budgets to deal with growing security threats.
The Asian economies hit hardest by the crisis have already flooded the Asian Development Bank with emergency loans to save their economies and finances from the fallout of the Iran war.
“The global economy will ultimately become more nervous,” Gill said. And that’s not good for long-term planning, investment or growth.