Why the Iran conflict is lifting energy prices worldwide
The escalating conflict involving Iran is pushing global energy markets into a fresh shock. When tension rises in a region linked to oil and gas flows, markets price in risk: disrupted supply routes, higher shipping and insurance costs, and uncertainty around deliveries. Even without a complete cutoff, fear and volatility can lift prices quickly.
Higher energy prices do not stay inside fuel markets. Oil and gas feed transport, electricity generation, and industrial production. When prices rise, businesses face higher costs and pass them through supply chains. That is why an energy shock becomes a broader cost-of-living issue.
For import-dependent countries such as Pakistan, the impact is sharper. A higher import bill can pressure the rupee, raise inflation, and strain public finances. Competition for limited supplies can also increase the risk of shortages in markets with weaker ability to pay.
Oil profits concentrate at the top: what the research shows
Economists say energy crises tend to channel profits toward a small group of wealthy shareholders. Research by economist Grégory Semieniuk, based on wealth trends after the 2022 Russia–Ukraine energy shock, highlights how these profit surges often flow upward.
His analysis found the United States recorded the largest increase in oil and gas profits during that period. The surge was so large that rising fossil fuel profits outweighed the decline in profits from other sectors in the same year. The gains were also highly unequal: about half went to the richest 1 percent of Americans, while the top 10 percent captured roughly 84 percent of total gains.
This concentration happens because the wealthiest households own a much larger share of stocks, including major oil and gas firms, directly or through investment funds. When prices surge, margins rise, share prices often climb, and payouts via dividends or buybacks reward those shareholders most.
Cost-push inflation: why higher fuel turns into higher food and bills
While investors gain, households face cost-push inflation. This occurs when key inputs—oil, gas, and fertilisers—become more expensive and businesses pass costs on to consumers.
Energy affects nearly every essential. Higher fuel prices raise transport and logistics costs. Electricity becomes more expensive where generation depends on fuel. Food prices can rise because farming and supply chains use diesel, and fertiliser prices often move with gas prices.
So people do not only pay more at petrol pumps. They pay more for groceries, commuting, deliveries, and daily services. Lower-income households are hit hardest because a bigger share of income goes to essentials like food, energy, and housing. In Pakistan, inflation pressure can be amplified by currency weakness and higher import costs, so even a short global spike can create longer local stress.
When it’s not just expensive: shortages in the Global South
Economists warn that high prices are only part of the problem. Energy shocks can also create supply shortages, especially in developing economies. Wealthier countries can often absorb higher bills and secure supply contracts. Poorer countries face tighter financing and weaker currencies, so availability becomes a real risk.
Shortages are already being reported in parts of Asia. The reporting notes that authorities in the Philippines and Pakistan have reportedly moved some government employees to four-day work weeks to reduce energy consumption. Long queues for gas cylinders have been reported in India. These are signs of stress beyond inflation—reduced work hours, rationing behaviour, and public anxiety around basic fuel access.
This gap shows why crises can widen inequality between countries. Richer states can cushion shocks through reserves and subsidies. Many Global South economies have limited fiscal space, so they face harsher trade-offs.
Why crises make fossil fuels look attractive and what it means for clean energy
Semieniuk also warns that geopolitical crises can make fossil fuel companies look like attractive investments, even as governments say they want to shift to cleaner energy. When prices surge, investors see stronger cash flows and returns, which can pull more capital into oil and gas and slow the transition.
This creates a policy dilemma. Households under inflation pressure may delay adopting cleaner technologies because budgets are squeezed. Meanwhile, higher profits can encourage further fossil fuel investment. For Pakistan, reducing exposure to global volatility requires practical steps: manage demand, target relief for vulnerable households, improve efficiency, and accelerate local clean energy solutions that lower import dependence.
The Iran war energy shock shows two realities at once. It can generate windfall profits for a small group of wealthy investors, while pushing higher costs and greater insecurity onto ordinary people. Managing that imbalance needs short-term protection and long-term reforms that reduce reliance on volatile fossil fuel markets.
