
The effects of the conflict are being felt much further than the Middle East
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Rahul Tandon
Hello and welcome to Business Daily from the BBC World Service. I'm Rahul Tandon. When a war breaks out, oil markets often react within minutes. And in recent days we've seen prices hit above $100 a barrel for the first time in four years. For a shock like this to happen, it sort of panics the industry. Oil, of course, is traded globally and even a hint of disruption can send traders, businesses and consumers scrambling. Everybody got bills and stuff. Now the gas is going way back up again, man.
Simon Johnson
We're all going to have to get
Rahul Tandon
electric cars or something. I don't know if they're coming down
Sarah Rogers
or going back up yet or what.
Rahul Tandon
So today we're asking why does conflict, which can be thousands of miles away, suddenly make life more expensive where you live and where is going to be hit hardest? We are hearing lots of sounds like that across the Middle East. The region, of course, is crucial to global energy supply. So any conflict there will affect economies across the world. And I'm sure that many of you are already seeing fuel prices rise where you are. It's an issue that the US President Donald Trump is concerned about.
Simon Johnson
We're also focused on keeping energy and oil flowing to the world terrorist regime to hold the world hostage and attempt to stop the globe's oil supply. And if Iran does anything to do that, they'll get hit at a much, much harder level. I will take out those targets.
Rahul Tandon
We wanted to take a step back here on Business Daily. There is so much going on and look at which regions will be hardest hit economically and find out why. With me today I have Simon Johnson, Nobel Prize winning professor at the Massachusetts Institute of Technology, former chief economist at the International Monetary Fund. And we have Aminat Bakar, head of Middle East Energy and OPEC insights at Kepler. Aminat, can I start with you? Firstly because you're in Dubai, Just tell us what's been taking place around you today.
Aminat Bakar
Yes, I'm based in Dubai and I'm currently still in Dubai. I would say over the past kind of few days, the intensity of the blasts we're hearing and the warnings that we get on our phone has decreased. Nonetheless, since I cover the energy industry very, very closely, attacks on energy infrastructure still are happening on a daily basis. So the war is very much still happening. And the attacks on the Gulf for now, I mean it's on a daily bas basis.
Rahul Tandon
And Simon, I think that gives us a real sense there of the scale of what is taking place. We're trying to analyze the impact of what's happening on the global economy. How crucial a moment are we in?
Simon Johnson
Well, rather crucial, terrible situation on the ground in Dubai and so on. I really feel very bad for everybody else. But the issue is does the Strait of Hormuz open or closed? Are tankers or carrying oil and liquefied natural gas able to pass through? And the reports are substantially. No, it's closed. That's a big hit to countries that import from the Middle east but also globally because it's one world market and one world price essentially in oil and gas is a little bit more regional, but it's a big hit for some particularly lower middle income countries.
Rahul Tandon
We are going to focus on who is having the biggest economic fallout from what is taking place. But we are already getting a sense of that across the globe. So before we continue our conversation with Simon and Amina, let's bring in our reporter to Sarah Rogers who's been looking at what's been going on over the past few days.
Simon Johnson
Global oil prices, the price of a
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barrel of oil smashed through $100 at one point.
Rahul Tandon
There are still lots of unknowns.
Sarah Rogers
So the disruption won't end overnight. Yes, lots of unknowns and those prices will be out of date by the time you're listening to this. So rapid have been the changes. The conflict in Iran is in its second week, but the economic impact is starting to hit home wherever you live.
Rahul Tandon
What is it, four bucks right here? This is kind of insane. It's happening so fast, it's only going to get worse.
Aminat Bakar
I definitely am feeling the pinch. I travel a lot and yes, this is very expensive.
Rahul Tandon
You know, I look at the new prices and I expect them to go down, but I mean, obviously they're going up. And I just don't understand.
Sarah Rogers
Prices at the pumps already rising, say those people in LA and New York. Now, unless you work in oil or shipping, the Strait of Hormuz may well be something that hasn't troubled you before. But as the conflict blocks gas, oil and other exports, the supply shock could make nearly everything we buy more expensive if it isn't reopened. Vincent Clerg, the CEO of the Danish shipping giant Maersk, told the BBC of the risks.
Rahul Tandon
For us, the main concern is the safety of our crews, is the safety
Aurobinder Naik
of our assets, and as long as
Rahul Tandon
there are significant drone capabilities, no assurance of a truce, then it's very hard for us to put our colleagues and our ship in harm's way and risk having an attack successful and create damage or loss of life.
Sarah Rogers
The world's largest oil producer, Saudi Aramco, has said the longer the conflict in Iran causes disruption to exports, the greater the global impact. And some countries are more at risk than others. India imports 90% of its oil, largely from the Gulf. Restaurants and hotels warn of closures as cooking fuel is restricted and homes are prioritized.
Rahul Tandon
This will impact the working people, students, more than families. But the hotel industry will face a huge impact because of this. There's no gas supply in the hotel, so what are we going to do? It's time to shut the hotel.
Sarah Rogers
There's no gas in Pakistan, schools have closed, Bangladesh has closed universities, and there's fuel rationing there. And in the Philippines,
Rahul Tandon
I'm planning to use half my fuel allowance, so I won't have to worry in the coming days in case the war in Iran continues and affects the shipments of gas. Seeing the rush over the last two days, it seems there is no oil in the country. People who need fuel are purchasing it, and those who don't need it are also purchasing it. Those who used to buy fuel for US$4 are now buying it for US$17.
Sarah Rogers
And financial markets have also been rattled. In South Korea, not one, but two stock exchange circuit breakers. After sharp losses, President Lee Jae Myung also announced a price cap on domestic gasoline. And
Rahul Tandon
we need to swiftly introduce and boldly implement the cap as the public is the first and Hardest hit by inflation from energy price hikes in Europe.
Sarah Rogers
Measures aren't anywhere near as severe, but it is being felt through higher transport and manufacturing costs. Jack Baxter is from logistics company Europa Worldwide, which is based in the uk. He told the BBC it's been pretty stressful.
Rahul Tandon
That's one way to describe it. Unfortunately, we don't have a massive well of reserve. Our business is moving goods from A to B and fuel represents about 25% of our operating cost. Our profit margins are pretty tight, so we have about 3% profit margins. So it's important that we seek to immediately pass that through to our customers. And our customers therefore seek to pass that onwards to the consumers.
Sarah Rogers
So when oil flows unevenly, the cost of that instability shows up on receipts around the world.
Rahul Tandon
Sarah, giving us a real sense there of the economic fallout which we are already seeing because of events across the Middle Eastern. Amina, can we start with you as we continue this conversation? When we're talking about oil and gas that goes through the Straits of Hormuz, how much of the world's supply is going through there?
Aminat Bakar
We have 20% of the world's needs, so that's 20 million barrels of flows. It's huge and it's not an amount that could be compensated by any other country. Even combined countries outside of this region or globally, there are efforts to release stocks, emergency stocks. That's a. A temporary solution. And we just see that the only way out of this crisis is the reopening of the Strait. And what is also at risk earlier is that energy infrastructure here in the Gulf region, where you have all the major producers, is continue to be targeted. Huge fields like the Shaiba field in Saudi Arabia, that's a million barrels a day. And we've seen countries in the region already shut down their production because they can't export their oil through Hormuz and their storages are full. So we have a huge backlog here. We're estimating an outage of maybe 6 million barrels a day from these states.
Rahul Tandon
You're listening to Business daily on the BBC World Service.
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Rahul Tandon
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Simon Johnson
Well, we can see, Raoul, the impact or likely impact through what the currency markets, how the currency markets are moving. So the Thai baht is under pressure. There's issues in the Philippines as well. Some other countries have faced pressure. South Korea was already mentioned. If a country has sufficient prosperity and sufficient fiscal firepower, they can subsidize fuel costs at least temporarily. That might get you through some difficult days. But if you're a country that exports, if you're a country that needs a lot of oil to run a fairly modern economy or an economy that's attempting to modernize like that of India, you've got a big problem.
Rahul Tandon
Interesting that you mention India there because I've been speaking to Aurobinder Naik. He's one of India's largest tea buyers and some of the containers he uses to transport that tea, well, they're currently stuck in the Middle East.
Aurobinder Naik
It's like end of voyage, there's nothing happening. The shipping companies have invoked a clause in the bill of lading which says during war they can cancel whatever obligations they have. And now it is at our cost. We have to bring back as and where is the containers are. There's going to be colossal Losses. The biggest market for Indian tea is Iraq, followed by Iran. Both of them are completely Persona non grata. It's not going to go that side.
Rahul Tandon
A huge problem for your business and it's not the only problem you're facing. There is a huge shortage of gas in India, which is used in cooking. You've been out looking for gas cylinders. Any luck?
Aurobinder Naik
This has just hit us in the last two, three days. We didn't even know about this. It's not going to be available. I might as well cut down on my food habits and cut down on the usage.
Rahul Tandon
There's a real example of a business that is struggling because of what is happening. And a lot of that oil that goes through the Straits of Hormuz goes to Asia, doesn't it? India, China. So these countries are really the ones that in the short term could face severe problems.
Aminat Bakar
Yeah, absolutely. I mean, more than 80% of Hormuzis flows is supplying Asia. Some countries are more prepared than others. For example, China, what we've been observing over the past year, specifically, they've been stockpiling a lot, lot of oil supplies and all commodities. So they're in a better position. But India with a reserve maybe that could last them 30 days, they're more exposed to this. And that's the reason why they went back to buying Russian barrels. There's no choice. I mean, they have to keep the lights on. They have a huge population there.
Rahul Tandon
And Simon, even if you are a country that doesn't import so much oil and gas, if those prices creep up and it's been so volatile that market, but they have crept up, oil, gas, they're the basis of economy. So if they go up, everything goes up. So all economies will be affected by this?
Simon Johnson
Yes, absolutely, to some extent. The price of fuel goes up, the transportation becomes more expensive. The price of oil, price of oil is up about 20, 25% compared to before this phase of the conflict started. And the price for jet fuel is up a lot more than that in some places. The price for liquefied natural gas is up a lot more than that in some place. So it's a definite impact on people who travel, on the movement of goods and that will be felt everywhere. And of course shocks like this have felt a lot more at the lower end of the income distribution just because what people consume a lot of basic food and the basics like energy prices feed very directly into their standard of living.
Rahul Tandon
And it's so hard, isn't it, to predict long term what's going to happen because this is a story that's changing hour by hour. But that's what we're trying to do for our listeners. Can I talk to you about gas which is so crucial to many parts of the world. Qatar has cut off, hasn't it? It gas at the moment. Now, even if stopped in the next week or two, how quickly can they get it all restarted again? Does it take time?
Aminat Bakar
It's not instant, but they can start up fairly quickly because especially our information indicates that there has been no damage to the giant Ras Lafan refinery in Qatar. It's just a matter of just ending the conflict, making sure that there are no attacks for the shipping industry and also Gulf states here in the, in the region, national oil companies to gain that confidence to go through the strait again. So all of that, I mean, when you're talking specifically around Qatar restarting, that could happen fairly quickly. We also heard from Aramco yesterday with their fields. They did have precautionary shut ins of some of their production from offshore fields that can come back within days. But with any war and any conflict, there is no timeline. We just need to live day by day and see how this ends because it doesn't depend on one country here.
Rahul Tandon
It's hard though, isn't it? If you're planning an economy, Simon, to live day by day you've got to make long term decisions here. We've all come out of this cost of living crisis. Many people listening to this have suffered because of that. And we've seen, we're now seeing interest rates coming down again. If this goes on for a long time, could we see interest rates going back up again?
Simon Johnson
Oh, absolutely. You know, one of the founding ideas of modern central banking is that in the 1970s oil prices went up and central banks did not react enough. So when they look back on this and they've looked back many, many times and thought about this a lot, the view is that in the face of a sufficiently strong inflationary shock, like the kind of increase in oil price we're talking about, the central bank should lean against that, tend to raise interest rates, keep the inflationary pressures down. Then you get less inflation later and less problems and less need for a deep recession and so on and so forth. So the central banks are going to be really, I think, quite inclined not to cut and even to raise interest rates in key markets.
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Yeah.
Rahul Tandon
And that of course has economic impacts on all of us, doesn't if those interest rates begin to creep back up again. I suppose as we look at what's taking place, we've had so many shocks to the global economy. It leads to that big question again of energy security. China is the world's largest importer of oil. So fluctuations in the oil price, as we've been talking about, will have an impact on it. Let's hear from David Lee. He's an economist who's advised the Chinese leadership. He says they will now rethink their energy policy. I would argue, I would believe that the policymakers in China will finally make a decision to switch from crude oil to methanol. The world's energy supply will have tremendous, tremendous change in landscape. The whole world will wake up. Africa, India and all these countries which are in shortage of crude oil. We have talked so much about this, Simon. It seems like a good idea in practice, but how easy is it to implement, to move away from oil because of the shocks we're seeing in the system?
Simon Johnson
Oh, China's made big, big strides in this direction. They've huge investments in renewable energies, for example, and also in nuclear. But the demand for oil is inelastic, meaning it doesn't change very much in the short term. Even when prices go up, it is more elastic. It does change more over time and you get investments. And I think China will and other countries will move differently in that direction. And I would also point out, and this is important for your listeners to understand, the US Is a net energy exporter. So this is very different from the 1970s when the US depended on oil. And at a macroeconomic level, the oil price shock was massive to the US Economy. The US Is in a different position now and US Oil industry is probably not that unhappy with somewhat higher prices.
Rahul Tandon
What sort of impact could this have? Are we talking about 1%, 2% impact on global GDP long term? Could this be bigger than the impacts that we've seen from the Russia, Ukraine, war?
Simon Johnson
It really depends on how long it lasts. And that is perhaps under the control of President Trump, perhaps not. If it's another week or two, then I think it's a relatively moderate but still fairly negative impact. If we're talking about going on four or five weeks longer into the summer, then yes, it could well be a bigger impact globally. Fate of the world economy is in the hands of just a few people right now.
Rahul Tandon
Amina, let's get your final thoughts as well. There's long term global implications, but from where you are, this could have a huge impact on those countries as well.
Aminat Bakar
No, absolutely, it does have a huge impact on all sectors here in the Gulf region, not just the energy sector or the sales of oil. And just something that I wanted to mention, the prices that we're seeing right now, these are prices that have been somewhat mediated by sentiment that this conflict won't drag on.
Rahul Tandon
Yeah. And we've had a lot of talk, haven't we, about the possibility. And that is all it is. It's speculation that oil could get as high as $150 a barrel. When we're seeing such problems in the oil market and we hear talks about releasing excess supply, why don't we just store more?
Aminat Bakar
There needs to be investment in storage. It's not something that happens overnight. And I think for the UAE and Saudi Arabia, for example, for them to bypass the Strait of Hormuz and still be able to supply the market under these extreme conditions, this is because of really good planning, lots of investments and maybe some countries just don't have the budget to do this.
Rahul Tandon
Amina, thank you so much for joining us. That's the end of this edition of Business Daily from the BBC World Service. Thanks to both of my guests and to the production team, Matthew Lyons and Sarah Rogers. If you're new here, why not subscribe to our podcast and you can get in touch with the team. Business dailybc.co.uk thank you for listening.
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In this episode, Business Daily examines the rapid surge in global oil prices following intensified conflict in the Middle East, particularly the closure of the Strait of Hormuz. Host Rahul Tandon is joined by Simon Johnson (Nobel Prize-winning professor at MIT, ex-IMF chief economist) and Aminat Bakar (Head of Middle East Energy and OPEC Insights, Kepler), alongside insightful field reporting and interviews. The discussion explores the mechanics of how distant wars can spike fuel prices everywhere, identifies regions and populations most affected, and looks ahead at possible economic and policy responses.
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The ongoing Middle Eastern conflict and Strait of Hormuz closure have immediately spiked oil prices, delivering swift and severe shocks around the globe — particularly in Asia and developing economies. The crisis demonstrates the fragility of global supply chains and the deep interconnectedness of energy, food, and everyday living costs. While short-term policy options are limited and painful, longer-term shifts towards energy security and diversification may accelerate, as countries like China and the US reevaluate their strategies in the face of persistent instability.