Simon Flowers has spent more than four decades working in the energy industry and analyzing it. After studying geology at Edinburgh University at the beginning of the nineteen-eighties, he worked for two years on exploration wells in the eastern Mediterranean, then joined Wood Mackenzie, which was then a stockbroker known for its energy research. When he started out, oil and gasoline prices were falling after two big shocks in the nineteen-seventies. Since then, he’s witnessed gluts in which prices collapsed, two previous Gulf wars that disrupted supply, and other major price spikes, including one in 2008 that was driven by strong demand and stagnant production, and another in 2022, after Russia invaded Ukraine. Now the chairman and lead analyst of Wood Mackenzie, which has evolved into a global energy consultancy, Flowers is no stranger to dramatic turns and market volatility. But even he was surprised last week when Iranian missiles struck the huge Ras Laffan liquid-natural-gas (L.N.G.) complex in Qatar, which converts gas that comes out of the ground into a liquid that can be transported on ships over long distances. “It takes the whole thing to another level,” Flowers, who is still based in Edinburgh, said to me in a video interview a day after the Iranian strike, which came in response to an Israeli attack on an Iranian gas field. Looking at a screen on his desk, he pointed out that the price of L.N.G.—a fuel widely used in power stations and heating systems—had jumped by thirty per cent in a single day.

In addition to bombing Ras Laffan, which is the world’s biggest L.N.G. export facility, the Iranian government had struck other energy infrastructure sites in Saudi Arabia, Kuwait, and the United Arab Emirates. After this escalation, the cost of a barrel of Brent crude oil, which comes from the North Sea and serves as a global benchmark in the oil markets, spiked up to nearly a hundred and twenty dollars. (Before the war, it was below seventy dollars.) “If the type of attacks we have seen over the past days continue, the oil price would likely go to a hundred and fifty dollars a barrel, and quite possibly to two hundred dollars,” Flowers said.

On the day that I spoke with Flowers, Donald Trump said that he had told Israel not to repeat its strike on Iranian gas fields, and Benjamin Netanyahu said that the country would hold off. But the tit-for-tat attacks were another sign that the war, and its economic consequences, was spiralling out of Trump’s control. Just as the President has inexplicably failed to anticipate Iran’s moves to close the Strait of Hormuz, a vital shipping lane for oil and L.N.G., and to target energy infrastructure in other Gulf states, he and his advisers appear to have overlooked the enduring influence of the Middle East in the global energy supply chain, and how disrupting this chain can harm the U.S. economy. A “National Security Strategy” document that the White House released in November notes that in recent years energy supplies “have diversified greatly, with the United States once again a net energy exporter.” And it said that as “American energy production ramps up, America’s historic reason for focusing on the Middle East will recede.” Yet ordinary Americans, who have seen the price of gasoline jump by almost a third in a few weeks, find themselves, once again, hostage to events in the Gulf. And the economic challenges facing many of America’s allies in Europe and Asia, which rely almost entirely on imports of oil and gas, are even more acute.

The key thing that the Administration’s national-security strategy neglects is that the market for oil is global, not national. Even as the explosive growth of fracking has turned the U.S. into the world’s leading oil producer, bigger even than Saudi Arabia, the oil price in the U.S. still gets determined in the global financial markets, where prices adjust to balance global supply with global demand. Inevitably, that adjustment process reflects developments in the Middle East, where about fifty per cent of the world’s oil reserves and about forty per cent of its natural-gas reserves are situated. Over the longer term, the rise of renewable sources of energy, such as solar and wind, could greatly reduce the importance of the Gulf producers. But with hydrocarbons currently meeting about eighty per cent of the world’s energy needs that hasn’t happened yet.

When I asked Flowers, half a century after the oil-price shocks of the nineteen-seventies, why energy markets are still so dependent on the Gulf, his response was telling. “Oil demand keeps growing and the supply has got to come from somewhere: that’s the core of it,” he said. Many countries in Europe and Asia don’t produce any oil, and they have no option but to import it. Taken together, the oil importers purchase about forty million barrels a day, of which at least fifteen million originate in the Gulf. If a large chunk of this supply gets shut off, as it did when Iran closed the Strait immediately after the U.S.-Israel attack, there is inevitably a significant impact on prices. “You can’t lose fifteen million barrels overnight and not see major repercussions,” Flowers noted.

Since the war began, its impact on the oil supply chain has taken place in stages, the analyst explained. Once the Strait was closed, insurers refused to cover cargoes destined for the narrow channel. “Ships couldn’t travel, and the whole supply chain was disrupted,” he said. With hundreds of fully loaded tankers stranded at sea, there was a shortage of empty ships to pick up new cargoes. For a short time, the four leading producers apart from Iran—Saudi Arabia, Iraq, Kuwait, and the U.A.E.—kept their wells operating and let the oil pile up in onshore storage facilities. But, by the start of last week, most of these facilities were full. The producers were forced to stop pumping operations at some of the wells, shutting in the oil beneath them. According to Wood Mackenzie’s calculations, across the four countries, about nine million barrels of oil a day have now been shut-in, which is more than eight per cent of the prewar total.

The oil shock is unprecedented—bigger in percentage terms than the shocks of the nineteen-seventies—but, at least until last week, it had unfolded much as Flowers and his colleagues expected after the war began. They had not, however, accounted for the possibility that the conflict would expand to large-scale attacks on energy infrastructure. The chief executive of the state-owned Qatar Energy said that the Iranian missile strikes knocked out about a sixth of its L.N.G. facilities, and it would take up to five years to repair them. At about the same time, the Pentagon confirmed that U.S. warplanes and helicopters were flying over the Strait in an effort to blast Iranian speedboats and shoot down Iranian attack drones. “In the first couple of weeks, it was possible to believe that the war would be quite short, and oil production could resume quite quickly after it ended,” Flowers said. “But that is looking less and less likely.”

With hostilities expanding, oil analysts are raising their estimates of the damage it is projected to cause. In 2008, in an environment of strong demand and stagnant production, the price of Brent reached close to a hundred and forty dollars a barrel. Last week, Goldman Sachs said that the price is expected to exceed its all-time high if the threat of a lengthier disruption persisted.

For many Americans, the most visible and immediate effect of an oil-price shock is higher gasoline prices. The average gas price across the country is now close to four dollars, compared with less than three dollars before the war began. If the oil price keeps rising, the gas price could reach five dollars. But over time rising oil prices also raise the cost of many other things, including airfares, plastics, and fertilizers. Oil shocks can also alarm investors—the Dow has fallen for four weeks in a row—and in recent years high asset prices have been a key prop for consumer spending. Despite these warning signs, many economists think that the economy will scrape through this year without a recession—Goldman, for example, puts the probability of one developing at just twenty-five per cent. But this is simply guesswork. As Jerome Powell, the Fed chairman, said last week, the surge in oil prices represents “an energy shock of some size and duration,” which has created so much uncertainty that “we just don’t know” what will happen.

The good news is that, although the U.S. is still dependent on fossil fuels, its economy is far less energy intensive than it was in the nineteen-seventies and early eighties, when there were two deep recessions associated with OPEC oil-price shocks. For every dollar of G.D.P. that the U.S. creates today, it uses about half as much energy as it did in 1980. Oil prices rose steeply in 2022, after Russia invaded Ukraine, and still the economy eked out a year of modest expansion. But there are counter-arguments: job growth is much weaker now than it was four years ago, and veteran observers of the oil industry recall how in 1990 and in 2008 price spikes were followed by recessions. “It is very worrying,” Flowers said, of the surge. “If we end up with Brent averaging a hundred dollars a barrel this year, it could push global growth below two per cent, and you could easily see major Western countries, including the U.S. and Europe, slip into recession in the second half of the year.”

The optimistic scenario is that Trump claims victory and calls off the war before more damage is done to energy infrastructure, which could enable oil prices to fall back rapidly and prevent lasting economic damage. (Short price spikes do much less harm than long ones.) In logistical terms, it would take two or three months for the Gulf oil producers to restore most of the production they have shut off, Flowers said. But this wouldn’t be the only challenge, he added: “The U.S. Administration could declare victory on whatever terms it wants, but the insurance companies would want assurances that peace was real and lasting.” If they didn’t get assurances that satisfied them from all three parties to the war—the United States, Israel, and Iran—they could still refuse to cover ships and cargoes passing through the Strait, thereby delaying any return to normality, or near-normality.

With Trump, of course, anything could happen. On Friday, he said that he is considering “winding down” the war. On Saturday, he said that the U.S. will “hit and obliterate” Iran’s power plants if it doesn’t open the Strait within forty-eight hours. Flowers, for his part, wasn’t feeling very optimistic going into the weekend. Comparing the Iranian oil shock to previous ones he has lived through, Flowers said to me in an e-mail, “This may be building towards the biggest crisis . . . from an energy point of view. That’s because the worst-case scenario is that the war proves difficult to stop, leaving the global economy short of reliable sources of oil, crude products (including fertilizer feedstock) and L.N.G. for an extended period.” If this outcome does materialize, all economic bets are off. ♦