The conflict in Iran is undermining a global economic environment that had previously been strong. The near-total closure of the Strait of Hormuz, through which nearly 20% of the world’s oil and LNG normally passes, has severely disrupted energy flows and caused energy prices to skyrocket: oil prices have risen by about 40%, European natural gas by 70%, and Asian natural gas by 80%. The path of the global economy will depend above all on how long the disruption lasts. A reopening of the Strait in the coming weeks would result in a moderate slowdown in growth and a temporary surge in inflation. Otherwise, the stagflationary shock would be more severe.

Our geopolitical advisory team, the Lazard Geopolitical Advisory Group, outlines four possible scenarios for the coming weeks, with the second considered the most likely:

•    Comprehensive Agreement: Current negotiations would lead to a substantial agreement, including the full reopening of the Strait of Hormuz, nuclear and ballistic missile issues, and an easing of sanctions on Iran, allowing both the United States and Iran to claim success. This would be the fastest path to normalizing energy flows and prices, but it is also the most politically demanding scenario.

•    Declared victory / limited ceasefire: The United States would rely on the forces assembled in the region to reopen the strait militarily. Under domestic pressure, Donald Trump could declare that his objectives have been met and seek to negotiate a ceasefire focused on the Strait, without addressing the underlying issues. This could allow limited traffic to resume, although energy prices would likely remain elevated for longer than in the first scenario.

•    Persistent conflict: Neither side would achieve its objectives, negotiations would make no progress, and the conflict would drag on without escalating further. The United States would deploy naval escorts, while Iran would continue relying on bilateral arrangements. Traffic through the Strait would remain very limited, and energy prices would stay highly volatile.

•    Escalation: The United States would launch ground operations to seize energy assets and/or expand its strikes to strategic infrastructure. Iran would retaliate with maximum force: strikes on energy infrastructure in the Gulf, laying mines in the Strait, and mobilizing the Houthis to disrupt transit in the Red Sea. The Strait would remain closed for several months, and energy prices would remain high for an extended period.

As a net energy importer, the eurozone is particularly exposed to the energy shock, although mainly through higher prices rather than supply disruptions, since exports from Gulf countries are largely directed toward Asia. As Christine Lagarde noted in a speech on March 25, several factors suggest that the pass‑through of price increases to the broader economy should be more limited than in 2022: the gas shock has so far been smaller, labor shortages have eased, initial inflation is lower (2% versus 5%), and macroeconomic policies are less accommodative.

That said, simulations by ECB staff suggest the impact could still be substantial. The baseline scenario assumes an average oil price of $90 per barrel in Q2 and a gas price of €50/MWh, followed by a rapid normalization. Under this assumption, growth in 2026 was revised down from +1.2% to +0.9%, with no negative quarters, while inflation was revised up from +1.9% to +2.6%. In addition, the ECB has published two alternative scenarios that envisage a more severe and prolonged crisis, with higher peaks in energy prices and a more gradual normalization. In the most adverse scenario, growth in 2026 would fall to +0.4%, including two quarters of contraction, while inflation would peak at +6.3% year‑over‑year.

For now, investors have focused primarily on the inflationary impact of the energy shock, to the point of anticipating three key rate hikes for the remainder of the year. However, these expectations of a very aggressive tightening of monetary policy seem excessive given the uncertainties surrounding the duration of the disruptions and their recessionary effects. March data show the first negative impact in surveys: consumer confidence has weakened, and the PMI recorded a sharp decline, though it remains in expansionary territory.

The United States is a net energy exporter, but that does not protect it from surging oil prices: since the start of the conflict, the average price of gasoline has jumped by nearly 30% and that of diesel by 45%. The oil market is highly integrated, and the price per barrel accounts for a larger share of pump prices than in Europe, resulting in a stronger and faster pass-through to consumers. By contrast, the benchmark price for U.S. natural gas (Henry Hub) has remained relatively stable, as this market is more segmented than the oil market and is supported by abundant domestic production.

During his March 19 press conference, Jerome Powell explained that it was still too early to gauge the impact of the energy shock on the U.S. economy. Assuming a rapid decline in energy prices, forecasters expect growth to remain slightly below 2% starting in the second quarter, a peak in inflation in the spring of nearly 4.0%, and a rise in the unemployment rate to 4.6% by year-end. For now, the Fed maintains in its projections a cut to the benchmark interest rate this year, while the market no longer anticipates any, compared to two or three expected before the war.

The deterioration in sentiment surveys in March suggests an initial impact from the energy shock, with effects currently more pronounced among households than among businesses. Daily data from Morning Consult indeed show a significant drop in consumer confidence, while the U.S. PMI declined only modestly, falling from 51.9 to 51.4. Furthermore, weekly jobless claims remained very low in mid-March, which is reassuring for the labor market following February’s poor jobs report.