Fuel, fertiliser and freight: how the Iran war is spreading through the global economy

The Iran war has ceased to be only a military crisis. It is now moving through the machinery of the world economy: oil inventories, refinery runs, jet fuel, petrochemicals, fertiliser, foreign reserves and the daily transport systems of import-dependent states.

The Strait of Hormuz has become the pressure valve of the global economy. The immediate story is the oil price. The deeper story is that countries are beginning to ration behaviour before the fuel system breaks.

The International Energy Agency says the Middle East conflict has caused an “unprecedented disruption to global fuel markets”, tightening supply and putting pressure on consumers and economies. Its crisis tracker, last updated on May 6, records emergency energy conservation and consumer-support measures across nearly 80 countries.

The list is no longer theoretical. Bangladesh has limited air-conditioning to 25C, closed public and private universities, urged businesses to cut unnecessary lighting, restricted fuel supplies for vehicles and promoted public transport. Ethiopia has urged the public to be “frugal” with fuel and told petrol stations to prioritise essential and public-service vehicles. Madagascar has declared a nationwide state of energy emergency for 15 days. The Marshall Islands has reduced daily working hours for civil servants and declared a 90-day state of emergency.

India, the world’s third-largest oil importer, has moved from insulation to public austerity. New Delhi has raised petrol and diesel prices by 3 rupees per litre, taking gasoline to 97.77 rupees a litre and diesel to 90.67 rupees. About 90 per cent of the oil India consumes is imported, and roughly half of its usual crude supply passes through Hormuz.

Prime Minister Narendra Modi has urged Indians to cut petrol and diesel use, use public transport and car-pooling, postpone foreign holidays and destination weddings, avoid gold purchases for a year and revive work-from-home practices. His argument was not only about fuel. It was about foreign exchange. India imports oil, gas and fertiliser in large quantities, and the war has pushed up the cost of all three.

The IEA’s policy tracker shows India capping industrial natural gas use, speeding the rollout of piped gas to replace domestic LPG, rationing commercial LPG use and promoting electric cookstoves. That is not normal energy policy. It is a state trying to slow the draw on imported fuel, foreign currency and subsidised household energy at the same time.

China is showing the refinery stress before the consumer panic.

Reuters reported on May 18 that China’s April crude-oil throughput fell to its lowest level since August 2022. Official data showed refinery throughput down 5.8 per cent year on year to 54.65 million tonnes, or about 13.3 million barrels a day. China’s crude imports fell 20 per cent year on year to 38.47 million tonnes, or 9.36 million barrels a day, the lowest level in almost four years.

The mechanism matters. Chinese refiners were not simply short of demand. They were losing money processing expensive crude. Reuters cited consultancy SCI saying refiners lost 649 yuan for each tonne of crude processed in April, compared with a profit of 269 yuan a year earlier. Oilchem put average refinery utilisation at 63.59 per cent. Smaller refiners were expected to deepen run cuts in May.

This is how an oil shock moves from shipping lanes into factories. Crude becomes expensive or unavailable. Refiners reduce runs. Margins turn negative. Fuel inventories behave strangely because demand is destroyed at the same time that production is constrained. The system does not collapse in one dramatic moment. It begins to misfire in separate places.

The worst-hit countries are not all hit in the same way.

In South Asia, the pressure comes through imported crude, foreign exchange, subsidies and household fuels. India is raising fuel prices and asking citizens to cut gold and foreign-travel spending. Bangladesh is restricting vehicle fuel supplies, closing universities and cutting cooling demand. Pakistan and Sri Lanka, according to the IEA tracker and regional reporting, have also moved into energy-saving emergency routines, including shorter working weeks and demand controls.

In East Asia, the pressure is industrial. China’s refinery system is cutting runs. South Korea, according to the IEA tracker, has promoted remote and flexible working, mandated odd-even driving restrictions for public-sector workers, encouraged major oil-consuming companies to submit energy-saving plans and banned hoarding of seven petrochemical feedstocks. That last measure is the giveaway. Governments do not ban feedstock hoarding unless plastics, chemicals and industrial supply chains are already under strain.

In Europe, the first visible impact is price and fiscal pressure rather than petrol-station queues. The European Commission has announced an AccelerateEU resilience plan and a fuel observatory. France has renewed social leasing for electric vehicles aimed at low-income workers dependent on private cars. Lithuania has cut local train fares by 50 per cent for two months. These are not wartime slogans. They are attempts to move commuters, reduce oil demand and keep lower-income workers from being crushed by transport costs.

The fertiliser market is the second front.

The International Food Policy Research Institute says the Iran conflict is the third major shock to fertiliser markets in six years, after Covid-era disruption and the Ukraine war. Its warning is blunt: concentrated production, fossil-fuel dependence, international trade exposure and inefficient fertiliser use leave global agriculture exposed.

The Gulf is not just an oil zone. It is a fertiliser and feedstock zone. Natural gas is the basis of nitrogen fertiliser. Sulphur and ammonia move through the same vulnerable maritime system. If Gulf shipping remains constrained, the impact is not only dearer petrol. It is dearer urea, ammonia, phosphates and food production.

IFPRI identifies Africa and South Asia as especially vulnerable because many countries are heavily dependent on Persian Gulf fertiliser and natural gas. The poorest importers face the hardest trade-off: pay more for fuel, pay more for fertiliser, subsidise consumers, defend the currency, or accept lower crop yields later.

That is why the Iran war is now becoming a food-security story. Fertiliser prices do not need to produce immediate supermarket panic to matter. They enter the crop cycle quietly. Farmers buy less. Yields fall later. Governments then discover that the oil shock has become a bread, rice and cooking-oil shock.

The aviation and petrochemical sectors are already absorbing the blow.

The IEA’s May Oil Market Report says global oil demand is now expected to contract by 2.4 million barrels a day year on year in the second quarter of 2026 and by 420,000 barrels a day for the year as a whole. That is 1.3 million barrels a day weaker than its pre-conflict forecast. The steepest losses, the agency says, are in petrochemicals, where feedstock availability is becoming constrained.

Aviation is also below normal levels. The IEA says jet fuel prices nearly tripled after Middle Eastern exports were cut off. That matters because aviation is not discretionary at the level of the global economy. It carries business travel, tourism, air freight, perishables, high-value components and the logistics of a services economy. When flights are cut, the damage is not confined to airlines.

The agency’s central warning is about inventories. It says global oil inventories are already drawing at a record pace and that further volatility is likely before the peak summer demand period. The danger is not that the world literally reaches zero oil. The danger is that inventories fall below operationally usable levels. Pipelines require pressure. Refineries require steady feedstock. Storage tanks cannot simply be drained to the floor without consequences. A modern fuel system can seize up before the last barrel is gone.

This is the point now being missed in much of the market commentary. The question is not whether Brent is at $105, $111, $150 or $180. The question is what price is required to force enough demand destruction before physical systems fail. Governments are already answering that question with work-from-home orders, air-conditioning limits, fuel rationing, travel restrictions, public-transport subsidies and appeals to patriotism.

Hormuz has turned energy into a test of state capacity.

The countries with reserves, fiscal space, domestic production and functioning public administration will experience the crisis as inflation, subsidy stress and political irritation. The countries without those cushions will experience it as fuel queues, power restrictions, foreign-exchange pressure, fertiliser shortages and social instability.

That is why India, Bangladesh, Ethiopia, Madagascar, the Marshall Islands, South Korea and China belong in the same story, even though their symptoms differ. They are not all facing the same shortage. They are all being forced to alter behaviour because the same chokepoint has begun to transmit stress through oil, gas, fertiliser, plastics, aviation and currency reserves.

The Iran war has therefore entered its more dangerous economic phase. The military question is whether Hormuz reopens. The economic question is how much of the world can keep functioning if it does not.