Iran Conflict: Geoeconomics, Fragmentation, and the Possible Trajectories

The International Institute for Middle-East and Balkan Studies (IFIMES)[1], based in Ljubljana, is widely recognized for its incisive and policy-relevant analyses of global developments, with a particular focus on the Middle East and the Balkans. In this intellectual tradition, Dr. Adnan Shihab-Eldin, former Secretary General of OPEC, in his article “Iran Conflict: Geoeconomics, Fragmentation, and the Possible Trajectories”[2], examines the ongoing conflict involving Iran through the prism of geoeconomics, energy security, and the accelerating fragmentation of the global order. The analysis outlines possible trajectories of the crisis and highlights their asymmetric implications for key regions and global energy flows.

Iran Conflict: Geoeconomics, Fragmentation, and the possible trajectories

We are in a moment when geopolitical tensions in the Gulf—particularly the ongoing conflict involving Iran—are once again intersecting with global energy markets, economic stability, and the trajectory of the energy transition. Beyond the immediate crisis, however, what we are witnessing reflects a deeper structural shift.

As I emphasized in my lecture earlier this year, we are entering an era of fragmentation—of geopolitics, of trade, and increasingly of energy systems.

This is no longer a temporary deviation; it is becoming a defining feature of the global landscape. The current developments in the Gulf are a clear manifestation of this transformation.

The global energy system is today both highly interconnected and structurally vulnerable. Around 20% of globally traded oil passes through the Strait of Hormuz, alongside a substantial share of LNG exports. This concentration creates a critical chokepoint. Recent events demonstrate that even partial disruptions—on the order of 20 to 50 percent—can have disproportionate effects on prices, logistics, and broader economic activity.

At the peak of recent tensions, up to 10–12 million barrels per day of oil—roughly one-fifth of global trade—was at risk, alongside significant LNG flows. Refining and downstream product supply chains were also affected, amplifying the shock across the system. This is not a localized disturbance; it is a global stress test.

Against this backdrop, I will structure the discussion around three scenarios, and within each briefly assess implications not only for the GCC and the wider MENA region, but also for Asia, Europe, Africa, and the United States.

Scenario 1: Ceasefire Holds – Agreement Within Weeks

In the first scenario, the ceasefire broadly holds, leading to an agreement within weeks.

Energy markets would stabilize, with prices easing as risk premiums decline and flows through the Strait of Hormuz normalize.

According to IMF estimates, a 10% increase in oil prices reduces global GDP growth by approximately 0.15 percentage points. A reversal of recent price spikes would therefore provide meaningful support to global recovery.

Regional implications:

• Asia: As the largest importer of Gulf oil and LNG, Asia benefits most. China, India, Japan, and South Korea would see lower import costs and improved energy security, easing inflationary pressures.
• Europe: Despite reduced dependence on Russian gas, Europe remains exposed to LNG dynamics. Stabilization would ease gas prices and storage pressures, supporting industrial recovery.
• Africa: Many African economies—particularly importers—would benefit from lower fuel costs and reduced fiscal strain, although exporters would see more limited upside.
• United States: As a net energy exporter, the U.S. is less directly exposed. Lower prices may slightly reduce upstream revenues but would support inflation control and consumer demand.

For the GCC, growth remains stable—likely in the range of 2.5–3.5% (IMF estimates)—with continued strong export performance.

From a climate perspective, lower energy prices may reduce short-term urgency, but the episode still reinforces the long-term imperative of diversification.

Scenario 2: Intermittent Escalation – Agreement Within Months

The second scenario involves cyclical escalation, with intermittent disruptions over several months.

In this context, fragmentation becomes operational and visible in markets:

• Oil prices become volatile, potentially fluctuating between $85–110 per barrel,
• LNG markets tighten,
• Shipping and insurance costs rise significantly.

The IMF suggests that such volatility could reduce global growth by 0.3–0.5 percentage points, with disproportionate effects on emerging economies.

Regional implications:

• Asia: The most exposed region. LNG-dependent economies face price spikes, supply uncertainty, and rising industrial costs. Growth in major economies such as China and India could slow, while smaller importers face acute stress.
• Europe: Continued LNG dependence exposes Europe to volatility. Price swings could weaken industrial competitiveness and complicate energy transition planning, increasing reliance on security-oriented policies.
• Africa: Import-dependent economies face rising fiscal pressure and inflation, while exporters may benefit from higher prices but lack the capacity to scale rapidly. The overall effect remains uneven and often negative.
• United States: The U.S. benefits partially as an LNG and oil exporter. However, gains are offset by financial volatility, inflation expectations, and broader global instability.

For the GCC, higher prices support revenues, but uncertainty weighs on investment planning, logistics, and non-oil sector diversification.

From a climate perspective, elevated prices may accelerate renewables and efficiency investments, but energy security concerns could simultaneously reinforce continued fossil fuel dependence.

This scenario illustrates the essence of fragmentation: divergent regional responses to a shared shock.

Scenario 3: No Agreement – Prolonged Volatility Through Year-End

The third scenario is the most severe: no agreement, sustained tensions, and structurally constrained flows through the Strait of Hormuz. Even partial disruption would significantly affect global supply chains:

• Oil prices could remain above $100 per barrel,
• LNG markets could experience severe shortages,
• Global trade flows would face sustained disruption.

Preliminary estimates suggest that the broader economic impact could reach approximately $1.5 trillion in trade and output effects.

The IMF and World Bank increasingly highlight stagflation risks:

• Global growth reduced by 0.5–1 percentage point,
• Persistent inflationary pressure,
• Elevated financial volatility.

Regional implications:

• Asia: The most severely affected region. Heavy dependence on Gulf energy translates into sharp import cost increases, industrial slowdown, and macroeconomic stress, with significant global spillovers.
• Europe: Faces renewed energy crisis dynamics—high gas prices, industrial contraction risks, and growing fiscal burdens linked to subsidies and stabilization measures.
• Africa: Highly vulnerable. Many economies would experience severe balance-of-payments stress, inflationary shocks, and heightened social risks linked to energy and food prices.
• United States: While relatively insulated in supply terms, the U.S. would still face inflationary pressures, tighter financial conditions, and a pronounced slowdown in global demand.

For the GCC, higher revenues may initially appear supportive, but overall effects become more complex: trade disruption, capital outflows, infrastructure risk, and heightened geopolitical exposure.

From a climate perspective, such a scenario may accelerate long-term diversification, but in the short term it reinforces reliance on higher-emission fuels as energy security dominates policy priorities.

Concluding Reflections

Across all three scenarios, one central conclusion emerges: we are no longer operating within a stable, globalized energy system, but within a fragmented, security-driven one.

This carries several implications:

• Energy security and energy transition are now inseparable and must be addressed in an integrated framework.
• The Gulf remains central to global energy supply, but its role is increasingly defined by risk, resilience, and diversification strategies.
• Regional impacts are highly asymmetric: Asia bears the greatest exposure, Europe faces structural vulnerability in gas markets, Africa experiences disproportionate economic stress, while the United States remains relatively more resilient yet still globally exposed.

For producing countries, strategic orientation must evolve:

• from efficiency to resilience,
• from transactional trade to integrated partnerships,
• and from stable assumptions to planning under persistent uncertainty.

Ultimately, fragmentation should not be viewed as a temporary disruption, but as a structural condition shaping global energy, economic, and climate trajectories.

In conclusion, it is important to emphasize that uncertainty remains high, and that future developments will largely depend on how events unfold in the coming weeks and months. However, what is already clear is that the implications of this conflict will extend far beyond the region—reshaping global energy markets, economic pathways, and climate strategies for years to come.

Particular thanks to GAFG and Prof. Anis H. Bajrektarevic, as well as the consortium of partners, most notably the International Institute IFIMES, for maintaining this important intellectual momentum.

About the author: 

Dr Adnan Shihab-Eldin is a Kuwaiti physicist, energy economist, and academic, who previously served as Secretary General of OPEC. He is currently a Senior Visiting Research Fellow at the Oxford Institute for Energy Studies and a founding board member of the Kearney Energy Transition Institute. He also serves as Chair of the GAFG Steering Board.

The views expressed in this article are the author’s own and do not necessarily reflect IFIMES official position.

Ljubljana/Kuwait City, 9 May 2026

[1] IFIMES - International Institute for Middle East and Balkan Studies, based in Ljubljana, Slovenia, has a special consultative status with the United Nations Economic and Social Council ECOSOC/UN in New York since 2018, and it is the publisher of the international scientific journal "European Perspectives."

[2] This article is based on a speech by Dr. Adnan Shihab-Eldin delivered as part of the GAFG Energy series, at an event of exceptional strategic relevance and timeliness, held on 23 April 2026, in a period marked by profound global turning points.