A Negotiated Ceasefire Could Prevent a Wider Global Energy Crisis
For much of the past six months, the war between the United States and Iran disrupted international energy markets without pushing the global economy into a full-scale crisis. Although the Strait of Hormuz remained largely closed to commercial shipping, governments and energy producers found ways to compensate for some of the missing oil and gas supplies.
That fragile balance is now breaking down.
The conflict has spread to energy infrastructure and shipping routes that previously helped countries cope with the closure of Hormuz. The Houthis, an Iran-aligned movement based in Yemen, have strengthened their position around the Bab el-Mandeb Strait, while a drone attack by an Iranian-affiliated militia in Iraq temporarily disabled Saudi Arabia’s East–West oil pipeline.
These developments have removed two important alternatives for transporting Gulf energy to international markets.
Oil prices, which were in the mid-$70s per barrel in August, climbed to approximately $110 in September. Further disruptions could, according to the article’s analysis, push prices towards $150 or even $200 per barrel.
The risk has increased following Houthi attacks on the Saudi cities of Riyadh and Yanbu, which have raised the possibility of a broader confrontation between Saudi Arabia and the Yemeni movement.
The central argument is that Washington can no longer assume the conflict will remain economically manageable. Continued military pressure has not compelled Tehran to accept American demands, while protecting the region’s energy facilities and shipping routes indefinitely would be extremely difficult.
A renewed diplomatic effort, despite the concessions it would require, is presented as a way to prevent a much more damaging economic crisis.
How Global Energy Markets Withstood the Initial Shock
When the war began, many economists feared that the effective closure of the Strait of Hormuz would produce a severe energy shortage and a global downturn.
Before the conflict, approximately 20 million barrels of crude oil and refined petroleum products passed through the strait each day. The route also carried nearly one-fifth of the world’s internationally traded liquefied natural gas.
By August, energy exports through the region had fallen to roughly half their prewar level. On some days, fewer than ten vessels passed through Hormuz, compared with approximately 130 to 150 commercial ships daily during peacetime.
Despite this disruption, the international energy system initially demonstrated considerable flexibility.
Oil prices rose from slightly above $70 per barrel before the war to more than $125 in April. They subsequently declined into the $80–$90 range, where they remained for much of the following period.
Several developments helped prevent a sustained price surge.
Additional Production Outside the Gulf
Oil producers beyond the Gulf increased output to replace part of the missing supply.
The United States, Argentina, Brazil, Canada and Guyana collectively added an estimated 1.4 million barrels per day.
Although this represented only a portion of the Gulf production that had become inaccessible, the additional supply helped ease pressure on the market.
Emergency Oil Reserves
Governments also released petroleum from strategic reserves.
In March, the International Energy Agency’s 32 member countries authorised the release of 400 million barrels from emergency stockpiles.
It was the largest coordinated release in the agency’s history, exceeding twice the approximately 183 million barrels released in 2022 during the war in Ukraine.
Commercial inventories provided further relief, allowing traders and refiners to replace some unavailable Gulf supplies and maintain fuel production.
Reduced Demand, Particularly in China
Higher prices encouraged consumers and businesses to reduce energy consumption.
China, the world’s largest crude oil importer, made particularly significant adjustments.
Its seaborne oil imports declined from more than 11 million barrels per day before the war to slightly above seven million in August.
Beijing drew on its approximately 1.4-billion-barrel oil stockpile, reduced refinery activity and restricted fuel exports to preserve domestic supplies of gasoline and diesel.
By purchasing less oil during periods of high prices, China effectively made additional supplies available to other importing countries.
Alternative Export Routes
Gulf producers also used pipelines to bypass the Strait of Hormuz.
The United Arab Emirates transported oil from its inland fields to Fujairah, which lies beyond the strait.
Saudi Arabia relied heavily on its East–West pipeline, which connects eastern oil-producing regions with the Red Sea port of Yanbu.
For much of the conflict, this pipeline transported approximately four to five million barrels per day, making it the region’s most important alternative oil export route.
Restraint in Attacks on Energy Infrastructure
Another important factor was the relative restraint exercised by the principal parties to the conflict.
Although numerous energy facilities were attacked, the largest oilfields, pipelines, processing plants and export terminals generally remained operational.
There were significant exceptions.
Israel struck Iran’s South Pars gas field in March, after which Iran attacked Qatar’s Ras Laffan facility. The damage reportedly removed approximately 17 percent of Qatar’s liquefied natural gas export capacity, with full restoration potentially requiring years.
More than 80 energy facilities across the region were reportedly struck during the conflict, including installations in Saudi Arabia, Bahrain, Kuwait and the United Arab Emirates.
Nevertheless, the article argues that Iran, Israel and the United States largely avoided sustained attacks on the most consequential energy infrastructure because each recognised the danger of retaliation.
The difficulty of defending oil and gas facilities against missiles, drones and bombs meant that a major escalation could inflict extensive damage on all sides.
Washington faced pressure from Arab governments concerned about attacks on their energy systems, while Tehran had an incentive to preserve its own oil and gas installations.
This mutual vulnerability helped limit the economic consequences of the war.
Why the Energy Market’s Remaining Defences Are Weakening
The arrangements that initially stabilised energy markets were never designed to sustain an extended regional war.
Governments have already used many of the quickest and least damaging measures available to them.
Additional production has entered the market, emergency reserves have been drawn down, consumption has been reduced and alternative shipping routes have been activated.
Further adjustments are possible, but they would be more expensive and difficult.
Oil and gas production outside the Gulf could increase over time, but substantial new output would require investment in drilling, pipelines and other infrastructure.
Such projects can take years to complete.
Meanwhile, much of the world’s readily available spare production capacity remains concentrated in the Gulf, where access to export routes is severely constrained.
Russia is also unlikely to provide substantial relief. Its refined petroleum exports have been restricted, and its energy infrastructure has suffered attacks during the war in Ukraine.
Reducing consumption further would carry growing economic costs.
Many importing countries have already conserved fuel, lowered refinery output, released reserves and substituted alternative energy sources.
Additional reductions could lead to factory closures, transport disruptions and weaker economic activity.
Emergency stockpiles are another source of concern.
These reserves are intended to address temporary supply interruptions rather than replace lost production indefinitely.
The US Strategic Petroleum Reserve has reportedly fallen below 300 million barrels, its lowest level since the 1980s.
Attacks on Saudi Arabia’s Pipeline and Red Sea Shipping Increase the Danger
The most consequential recent development has been the targeting of the alternative routes used to export Gulf oil.
A drone attack launched from Iraq by an Iran-aligned militia struck Saudi Arabia’s East–West pipeline, forcing Riyadh to suspend its operation.
The disruption removed millions of barrels of oil per day from international markets, potentially equivalent to as much as four percent of global supply.
The pipeline could return to full operation within days, but repairs might also take several weeks.
Even a rapid restoration would not eliminate the risk of another attack.
The Houthis have also expanded their position along Yemen’s western coastline.
By mid-September, they controlled much of the coast, including the strategically important port of Mokha and islands around the Bab el-Mandeb Strait.
Having announced restrictions on Saudi shipping in July, the movement is now better positioned to threaten vessels using drones, missiles and shorter-range weapons.
As a result, both the Strait of Hormuz and the Bab el-Mandeb route have become increasingly dangerous for oil tankers, particularly those carrying Saudi petroleum.
The article warns that the loss of these routes could transform a prolonged regional conflict into a worldwide economic emergency.
The Economic Consequences Could Extend Far Beyond Oil Prices
A further reduction in energy supplies would affect industries and households across the world.
Diesel shortages could disrupt trucking, agriculture, construction, manufacturing and maritime transport.
Reduced liquefied natural gas supplies would place additional pressure on electricity generation and heating, especially as Europe approaches winter with insufficient gas inventories.
Fertiliser shortages could increase agricultural costs and threaten future harvests.
The consequences would be particularly severe for countries dependent on imported energy.
Approximately three-quarters of the world’s population live in countries that rely on energy imports.
Wealthier economies may be able to pay higher prices to secure limited supplies, while poorer countries could face prolonged shortages and mounting fiscal pressure.
Governments would confront difficult decisions over fuel subsidies.
Reducing subsidies could increase household costs and trigger public dissatisfaction, while maintaining them could further weaken public finances.
Central banks would also face a dilemma: higher interest rates might help contain inflation but could deepen economic slowdowns in countries already struggling with energy shortages.
The article notes that fuel-related pressures have contributed to public protests in Guatemala, Indonesia, the Philippines, Portugal and other countries.
Its broader warning is that continued attacks on energy infrastructure could turn the economic instability feared at the beginning of the war into a much more serious global crisis.
Why Washington Needs to Reconsider Its Iran Strategy
The article argues that the United States should reassess its approach after nearly seven months of military operations and economic pressure.
Washington has attacked military targets and industrial infrastructure while maintaining sanctions and a naval blockade.
Yet these measures have not brought about the Iranian government’s collapse or compelled it to accept American demands.
The article portrays Tehran’s leadership as determined to continue fighting despite the economic suffering of the Iranian population.
It also points to assistance from Russia and China, limited continuing oil and gas sales, and financial resources accumulated earlier in the conflict as factors that could help Iran sustain its position.
The economic and military costs for the United States and its partners, meanwhile, are increasing.
Against that background, the article calls for a renewed diplomatic strategy rather than continued reliance on military escalation.
Why the Previous US-Iran Understanding May Need Revision
The analysis argues that Washington should not simply revive the memorandum of understanding negotiated with Tehran in June without changing its terms.
That arrangement did not impose restrictions on Iran-aligned armed groups that are now threatening regional energy infrastructure.
It also failed to establish limits on Iran’s missile and drone capabilities.
The article criticises the economic provisions of the earlier understanding, which reportedly included access to a $300 billion reconstruction fund, the removal of sanctions and the release of frozen Iranian assets.
It argues that some of these assets could instead provide leverage in future negotiations over Iran’s nuclear activities.
The proposed approach would therefore involve either negotiating a new agreement or substantially revising the June understanding.
What a New Ceasefire Agreement Should Include
A renewed diplomatic initiative would need to address more than the immediate exchange of attacks between Washington and Tehran.
According to the article, an effective ceasefire should extend to energy infrastructure and cover all relevant parties and their affiliated groups.
This would include the United States, Israel, Arab partners, Iran, the Houthis and Iran-supported armed groups operating in Iraq and elsewhere.
The agreement would also need provisions concerning Iran’s nuclear programme.
The article proposes that Tehran commit not to change the status of its nuclear capabilities during the ceasefire.
In return, Washington would indicate that any military response to a violation of that commitment would be confined to nuclear facilities.
Iran could receive negotiated sanctions relief, access to some frozen assets and reconstruction assistance, provided it complied with the agreement.
These provisions are presented as a means of creating incentives for both sides to maintain the ceasefire.
Reopening the Strait of Hormuz Would Be Essential
Restoring maritime trade would be another central objective.
Under the proposed arrangement, the United States would end its blockade of Iranian vessels.
Iran would remove mines from the Strait of Hormuz and halt attacks on tankers using the waterway.
The article also suggests exploring a multilateral authority to oversee passage through the strait and administer reasonable transit fees.
Although unrestricted navigation would be preferable, the analysis argues that some form of payment arrangement may now be difficult to avoid because the June understanding accepted Iran’s right to collect fees.
Rather than placing control exclusively in Iranian and Omani hands, the proposed framework would involve all Gulf countries.
These would include Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
Such an arrangement is presented as a possible way to reduce disputes over maritime access while restoring international energy shipments.
Saudi Arabia May Need a Separate Agreement With the Houthis
A settlement between Washington and Tehran would not automatically resolve every threat to regional energy infrastructure.
The article questions whether Iran exercises sufficient control over the Houthis to compel them to stop attacking Saudi Arabia.
The Yemeni movement retains a considerable degree of autonomy, and its conflict with Riyadh is closely connected to Yemen’s prolonged civil war.
Saudi Arabia may therefore need to negotiate a separate ceasefire with the Houthis.
Such an agreement would be difficult and could require recognition of the movement’s participation in Yemeni politics.
It might also involve economic arrangements, potentially including a share of Yemen’s oil revenues.
The article argues that Washington should encourage Riyadh to begin negotiations before the confrontation escalates further, raises energy prices and threatens Saudi Arabia’s own stability.
What the United States and Iran Could Gain From Ending the War
A comprehensive cessation of hostilities could produce economic and security benefits for both sides.
For the United States, reopening energy routes could help reduce oil and gas prices, ease shortages and lower inflationary pressure.
It could also reduce the danger of a wider conflict that destroys major energy facilities and pushes the global economy towards recession.
Washington would have an opportunity to withdraw much of its military presence from the region, replenish depleted munitions and restore military readiness.
Iran would also stand to benefit.
An agreement could reduce the threat of devastating attacks on its energy infrastructure and allow the country to increase oil and gas exports.
Sanctions relief, the release of frozen assets, reconstruction assistance and potential transit revenues could provide additional economic benefits.
Nevertheless, the article acknowledges that these incentives may not be sufficient to persuade either government to compromise.
Both sides have shown reluctance to end the conflict without being able to claim a clear victory.
Iranian officials could interpret a renewed American diplomatic initiative as evidence of weakness and respond by maintaining their demands.
At the same time, Iran’s economic difficulties—including declining output, high inflation and a weakening currency—could increase the appeal of a negotiated settlement.
China Could Help Encourage a Diplomatic Agreement
The article proposes that Washington make the terms and potential benefits of a settlement public.
Its reasoning is that greater awareness of the economic advantages could increase domestic pressure within Iran for a diplomatic solution.
It also recommends involving China in efforts to encourage Tehran to compromise.
Beijing has an economic interest in preventing further disruption to global energy markets and could therefore be willing to support negotiations.
The analysis presents Chinese participation as a possible means of strengthening diplomatic pressure while reducing the risk of a wider economic crisis.
Trump Faces a Difficult Political Decision
Any negotiated settlement would require the Trump administration to accept an outcome that could attract domestic criticism.
The article argues that the United States has incurred substantial economic, military and human costs without achieving a decisive resolution.
It also contends that the war has depleted American military resources, raised questions about Washington’s ability to protect regional partners and potentially increased incentives for Iran and other countries to seek nuclear capabilities.
A new agreement could therefore be criticised for leaving Iran with economic and strategic benefits despite the costs of the conflict.
However, the article’s central conclusion is that continued warfare and economic pressure offer no clear route to a better outcome.
Further escalation could instead produce a much more damaging crisis if Iran, the Houthis or other aligned groups destroy additional energy infrastructure, whether deliberately or through miscalculation.
A negotiated end to the war could allow Trump to point to falling energy prices, reduced military commitments and the restoration of international trade as achievements.
The most difficult questions, including Iran’s nuclear programme and the longer-term security arrangements of the Gulf, could then be addressed through subsequent negotiations.
The article concludes that the existing stalemate is becoming increasingly dangerous: diplomacy would require concessions, but allowing the war to continue could impose far greater costs on the United States, Iran and the global economy.
