The outbreak of what has been called “the worst energy disruption in history” by the IEA International Energy Agency (IEA) has sent the global geopolitical risk index to levels not seen since the 9/11 terrorist attacks on New York.

The energy, stocks and debt market have been roiled by the collapse of oil and gas deliveries to the international market after Iran shut off the Straits of Hormuz on March 2 in a conflict with the US and Israel that shows no signs of coming to a quick end.

The IEA tried to calm traders by announcing the largest release of oil from reserves in history, but after oil prices briefly dropped from a peak of $120 on March 9 to $85 per barrel, they sprang back to $100 after three tankers were hit by Iranian rockets the next day. The newly appointed Iran's Supreme Leader Mojtaba Khamenei issued his first public statement and swore to seek revenge for the launch of Operation Epic Fury.

The Geopolitical Risk Index has surged since hostilities erupted, reaching its highest level since 2001, according to Oxford Economics. The current reading is also on par to the peak recorded during the Gulf War as uncertainty across global markets builds.

Economists warn that periods of elevated geopolitical tension tend to weigh on corporate decision-making, particularly when firms face uncertainty about energy markets, trade flows and the broader economic outlook.

“Higher geopolitical uncertainty may prompt firms to delay investment plans,” Oxford Economics said, adding that the ultimate economic impact will depend heavily on the duration and severity of the conflict. The consensus amongst analysts after the first ten days is that the conflict will likely be short, about a month, as the US navy would reopen the Straits of Hormuz. However, in just the last few days that confidence has started to fade after the navy admitted it could not send ships into the Straits as it is “too dangerous to traverse.”

The Gulf region is likely to suffer the most from the conflict, but the wider global economy is more inured to the crisis, as the Gulf accounts for only around 2% of global GDP. Moreover, unlike the 2022 energy crisis, since then many economies, led by China, have invested heavily into renewables and nuclear power and have more options to make use of alternative energy sources, including coal.

Oxford Economics noted that its investment outlook had already been relatively cautious before the conflict escalated. “Although there's likely to be a significant impact on the GCC, the ripple effects for the rest of the world will probably depend on the duration of the conflict and the extent to which firms see the global economic outlook as more uncertain,” the firm said.

“Prior to the conflict, our investment forecasts were relatively cautious, but a sustained disruption to energy markets would likely be the catalyst for further weakness,” the consultancy said.