War with Iran delivers another shock to the global economy in World Economy News 11/03/2026 The war with Iran is doing collateral damage to the world economy. The conflict is driving up energy and fertilizer prices; threatening food shortages in poor countries; destabilizing fragile states such as Pakistan; and complicating options for the inflation fighters at central banks like the Federal Reserve. Causing much of the pain: the Strait of Hormuz — through which a fifth of the world’s oil passes — was effectively shut down after the U.S. and Israel launched missile strikes Feb. 28 that killed Iranian leader Ayatollah Ali Khamenei. “For a long time, the nightmare scenario that deterred the U.S. from even thinking about an attack on Iran and which got them to urge restraint on Israel was that the Iranians would close the Strait of Hormuz,” said Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund. “Now we’re in the nightmare scenario. With a key shipping route cut off, oil prices have surged — from less than $70 a barrel on Feb. 27 to a peak of nearly $120 early Monday before settling closer to $90. They’ve taken gasoline prices with them. According to AAA, the average price of U.S. gasoline has shot up to $3.48 a gallon from just under $3 a week ago. Prices could be felt even more significantly in Asia and Europe, which are more dependent on Middle Eastern oil and gas than the United States. In India, restaurants are already warning of possible shutdowns as the government prioritizes gas supplies for households. Thailand has suspended overseas travel for civil servants and urged them to take stairs instead of elevators. The Philippines has introduced a temporary four-day work week for some government agencies, while Vietnam is encouraging people to work from home. 20 million barrels of oil a day go missing Every 10% increase in oil prices — provided they persist for most of the year — will push up global inflation by 0.4 percentage points and reduce worldwide economic output by as much as 0.2%, said Kristalina Georgieva, managing director of the International Monetary Fund. “The Strait of Hormuz has to be reopened,” said economist Simon Johnson of the Massachusetts Institute of Technology and recipient of the 2024 Nobel memorial prize in economics. “It’s 20 million barrels of oil a day going through there. There’s no excess capacity anywhere in the world that can fill that gap.” The world economy has shown it can take a punch, absorbing blows from the Russian invasion of Ukraine four years ago and from President Donald Trump’s massive and unpredictable tariffs in 2025. Many economists express hope that global commerce can stagger through the latest crisis. “The world economy has shown itself capable of shaking off significant shocks like broad U.S. tariffs, so there is room for optimism that it will prove resilient to the fallout of the war on Iran,” said Eswar Prasad, professor of trade policy at Cornell University. Timing is everything Especially if oil prices can fall back to the $70-to-$80-a-barrel range, wrote economist Neil Shearing of Capital Economics, “the world economy may absorb the shock with less disruption than many fear.” But a lot of ifs remain. “The question is how long is it going to go on?” said Johnson, also former IMF chief economist. “It’s hard to see Iran backing down now that it’s announced this new leader” – Mojtaba K