Which economies will hurt most from the Iran war?

LONDON—Any prolongation of the Iran war risks creating an unprecedented crisis in energy supplies that sooner or later will hit every corner of the global economy.

But it is already clear that some countries are either more exposed to that impact or less able to deal with it. Here are some economies to watch.

THE G7 BIG ECONOMIES

Look first to Europe. ​A fresh energy shock rekindles painful memories in the region of the Russian invasion of Ukraine four years ago. That brought its import dependence into stark focus ‌and sent inflation surging into double digits.

GERMANY – Its industry-heavy economy has more to lose from costlier energy. Activity in its manufacturing sector has only stopped contracting for the first time since 2022. And as an exporter, Germany is exposed to any global downturn.

A massive stimulus programme Germany announced last year will help cushion some of the impact, but room to provide more support is limited given budget shortfalls in the coming years.

ITALY – Also home to a big manufacturing ​sector. Moreover, oil and gas have one of the highest shares in its primary energy consumption in Europe.

BRITAIN – Its electricity production is more reliant on gas-fired power than other ​major European economies. Gas prices almost always set its electricity prices – and they are rising faster than oil since the start of the war.

An energy ⁠price cap will dampen the initial inflation impact. The risk is it leads to interest rate hikes so Britain may be left with the highest borrowing costs in the G7 for longer at ​a time of rising unemployment. Budget strains and bond market pressure limit its options for helping businesses and households.

JAPAN – Also firmly in the firing line, sourcing around 95% of its oil from the Middle ​East and nearly 90% of it travelling through the Hormuz Strait.

That comes on top of inflationary pressures it already faces from a weak yen, which feed into food and daily necessities given Japan’s heavy reliance on imported raw materials.

EMERGING ECONOMY HEAVYWEIGHTS

The Gulf region itself is inevitably taking a direct economic hit, with some forecasters already predicting its economy will now shrink this year, reversing pre-war expectations for solid growth.

The sharp jump in oil and gas prices ​is no help if the effective closure of the Strait of Hormuz means countries – especially Kuwait, Qatar and Bahrain – can’t get their hydrocarbons onto the international markets.

The conflict could also affect remittances – the ​money expat workers send back home to their families and which each year pumps tens of billions of dollars into the local economies.

INDIA is another exposed heavyweight. It imports about 90% of its crude oil and ‌nearly half of ⁠its liquefied petroleum gas, and roughly half of that oil and an even larger share of its LPG also has to come through the Strait of Hormuz.

Economists are already trimming the country’s growth forecasts and the rupee has swooned to a record low. In restaurants and kitchens across India, hot food and drinks – even samosas, dosa and chai tea – are disappearing from the menu as the surge in gas prices leads to informal rationing.

TURKEY – Sharing a border with Iran, it is bracing for a potential influx of refugees and more geopolitical uncertainty. The main economic impact meanwhile has been on the central bank.

It is ​already having deja vu of inflation crises past. ​It has been forced to halt its ⁠interest rate-cutting cycle for the second time in a year and sold as much as $23 billion in precious reserves to bolster its currency.

THE FRAGILE FEW

There are also a handful of countries that look particularly vulnerable having all recently been through – or had very close shaves with – full-blown economic crises.

SRI LANKA ​has just made every Wednesday a public holiday for state-sector workers in a bid to cap energy costs. Schools, universities and public institutions are ​being shut, non-essential public transport ⁠suspended and drivers must now register for a National Fuel Pass restricting fuel purchases.

PAKISTAN was teetering on the brink of crisis two years ago and has ramped up its petrol prices and closed its schools for two weeks too. Government departments are having their fuel allowances halved, are now banned from buying new air conditioners and furniture, and have been ordered to take a chunk of their vehicles off the road.

EGYPT, ⁠on top ​of the surging cost of fuel and food staples, faces the prospect of a sharp drop in Suez Canal and ​tourism revenues, the latter of which brought almost $20 billion into the economy last year. The cost of paying back its debt, much of which is in U.S. dollars, has been made more arduous too by a near 9% slump in its ​own currency since the war began.

Additional reporting by Leika Kihara in Tokyo; Patrick Werr in Cairo; Ariba Shahid in Lahore; Jonathan Spicer in Istanbul; editing by Mark John and Hugh Lawson