Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: A sudden and fierce exchange of military strikes between Israel and Iran this week has triggered global alarm, escalating fears of a broader Middle East war and sending shockwaves through the global economy—particularly in the energy and financial markets.
On Monday, Israel launched airstrikes targeting Iranian military assets in Syria and parts of western Iran in response to Iran’s unprecedented drone and missile attacks over the weekend. Tehran claimed its strike was retaliation for the bombing of its diplomatic compound in Damascus earlier this month, which it blames on Israel.
The tit-for-tat strikes mark the first direct military confrontation between the two regional powers, fueling fears of a regional war that could draw in the United States, Lebanon’s Hezbollah, and other actors.
Oil Prices Skyrocket, Supply Chains at Risk
The immediate economic consequence has been a dramatic spike in global crude oil prices, with Brent crude surpassing $92 per barrel, the highest in six months. Analysts fear further escalation could disrupt major oil shipping routes through the Strait of Hormuz, a chokepoint through which nearly 20% of the world’s oil supply passes.
“Any conflict that endangers Middle Eastern oil flows will have direct and severe repercussions on global inflation and supply chains,” said Jason Bordoff, Director at Columbia University’s Center on Global Energy Policy.
Global energy markets were already under pressure due to supply cuts by OPEC+ and the ongoing war in Ukraine, but the Israel-Iran conflict adds a new layer of geopolitical risk that could destabilize fragile post-COVID recoveries across Asia, Europe, and developing economies like Nepal and Bangladesh.
Market Volatility and Currency Pressure
Global stock markets reacted sharply to the crisis. The Dow Jones fell over 400 points, while Asian indices showed mixed reactions. Gold prices surged past $2,400 per ounce as investors rushed to safe-haven assets. Emerging market currencies including the Indian Rupee, Nepali Rupee, and Turkish Lira also saw immediate downward pressure.
International airline and shipping companies are reportedly rerouting flights and cargo away from the Middle East, leading to concerns about increased transportation costs and supply chain disruptions, particularly for essential imports in South Asia and Africa.
Implications for Nepal and Developing Nations
For import-dependent countries like Nepal, rising oil prices mean an inevitable increase in transportation, food, and energy costs, likely accelerating domestic inflation. Nepal Oil Corporation is expected to adjust fuel prices upward if the price surge sustains, increasing public financial strain.
Additionally, the uncertainty could negatively affect foreign direct investment (FDI) in volatile regions and discourage investor confidence in South Asian markets.
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