Safeguarding global energy amid turmoil

As tensions in the Middle East intensify, their effects are no longer confined to the region. They are increasingly reverberating across global energy markets, disrupting supply chains for critical goods, and adding to inflationary pressures worldwide.

These risks are magnified by instability in the Strait of Hormuz, a vital artery through which nearly one-fifth of the world’s oil supply flows. Its importance to global energy security and trade — particularly for East Asia —cannot be overstated.

At its most recent meeting, the Federal Open Market Committee chose to maintain the federal funds rate at 3.5-3.75 percent, signaling a cautious stance amid a highly uncertain economic environment. Notably, the Federal Reserve identified developments in the Middle East as a key risk to the global economic outlook.

Indeed, the Federal Reserve has warned that escalating tensions could exert renewed upward pressure on inflation. Near-term inflation expectations have risen in recent weeks, largely reflecting higher oil prices driven by supply disruptions in the region.

Beyond the US, the economic consequences are likely to be global in scope. Countries heavily dependent on energy imports — as well as critical inputs such as fertilizers, industrial gases, and specialized manufacturing equipment — are particularly vulnerable. Disruptions to these supply chains can increase production costs and constrain output in key sectors, including food production, pharmaceuticals, and semiconductors.

These effects are especially pronounced in East Asian economies such as China, which rely on the Gulf region for more than 20 percent of their oil imports. Prolonged instability in energy supply routes — especially through chokepoints like the Strait of Hormuz — could therefore transmit inflationary shocks across global value chains, amplifying the broader economic impact.

Given the scale of these disruptions, many analysts warn that the economic consequences could be both severe and prolonged. In a worst-case scenario — particularly if the conflict escalates and oil prices surge to as high as $200 per barrel — the global economy could enter a period of stagflation. 

This condition, marked by stagnant growth, high inflation, and rising unemployment, presents a formidable challenge for policymakers.

Against this backdrop, Saudi Arabia has played a pivotal role in mitigating the impact of disruptions in the Gulf. Central to this effort is its strategic use of the East-West Pipeline. Spanning approximately 1,200 km, the pipeline connects oil fields in the Eastern Province to export terminals on the Red Sea, enabling the Kingdom to bypass the Strait of Hormuz altogether.

With a capacity of around 7 million barrels per day, this alternative route helps sustain global oil supply even amid threats to maritime navigation in the Gulf. In parallel, the Kingdom has enhanced access to its ports and transport corridors, facilitating the movement of goods across Gulf and Arab countries. These measures support regional and global trade while helping to ease supply chain disruptions during a period of heightened geopolitical uncertainty.

Saudi Arabia’s role in stabilizing global markets is not new. During previous crises — including the COVID-19 pandemic and the 2008 financial crisis — the Kingdom demonstrated prudent economic management and a strong capacity to support market stability.

Today, it once again reinforces its position as a key stabilizing force, responding effectively to geopolitical disruptions and contributing to global economic resilience.

• Talat Zaki Hafiz is an economist and financial analyst.

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