8. Inventory levels differ across energy markets at present. Natural gas markets are relatively tight, with depleted seasonal inventories in Europe. In contrast, global oil inventories are more robust, at around their highest level since 2021, with the majority of these held outside the Gulf economies. Member countries of the International Energy Agency agreed on 11 March to make 400 million barrels of oil available to the market from their emergency reserves to mitigate the negative economic impact of supply disruptions. This is equivalent to the volume of oil and oil products that would typically pass through the Strait of Hormuz in 20 days, prior to the conflict. While welcome, it may take some time for all of these additional supplies to become available and for refined product shortages to be reduced.
9. The conflict also poses broader risks to global supply chains. Fertilisers are a particular risk, with Persian Gulf states accounting for 34% of the world’s urea exports and around 20% of diammonium phosphate and anhydrous ammonia exports in 2024. LNG is an important input to nitrogenous‑based fertilisers, and the Gulf states also produce about half of the world’s sulphur exports, which are used in the manufacture of fertilisers as well as other industrial products. Fertiliser prices have risen sharply, with urea prices up by over 40% since mid-February. This will have adverse implications for crop yields and global food prices in 2027 if sustained. Brazil, India, Australia and South Africa all source a relatively high share of key fertiliser inputs from the Middle East (Figure 5, Panel B). Collectively, Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates are also an important source of aluminium production, accounting for 8% of the global supply of primary aluminium. The Middle East is a significant source of other materials as well, producing over one-third of the global supply of helium and over two-thirds of the supply of bromine, which are important for industrial supply chains, including for semiconductors and memory chips. More broadly, countries around the Persian Gulf are a logistical hub for many services. The significant curtailment of air travel in the region could potentially have discernible impacts on trade volumes and costs, with airlines based in countries around the Persian Gulf accounting for 15% of both the international air freight and air passenger markets. Other types of services trade might also be affected if the conflict deepens, with the United Arab Emirates an important exporter of tourism and business services.
10. Financial conditions were very accommodative in both advanced and emerging-market economies prior to the escalation of hostilities in the Middle East, with strong equity price growth and low bond spreads (Figure 8, Panel A). The repricing that has occurred since the end of February has removed a lot of this accommodation. Volatility in financial markets has increased markedly, and equity prices have fallen across countries (Figure 8, Panel B). The price of gold, traditionally considered a safe-haven asset, has declined, possibly reflecting sales by leveraged investors seeking liquidity to absorb losses elsewhere, as well as market expectations of possible monetary policy tightening in some economies. The US dollar has appreciated against a basket of currencies since end‑February, adding to the upward pressures on energy prices in domestic currency terms in many countries, with effective exchange rate declines in Korea and a number of emerging-market economies, including Mexico, South Africa, and Thailand, and continued currency weakness in India. Ten‑year sovereign bond yields have also risen across major advanced and emerging‑market economies. This has been especially the case in Mexico, South Africa and Türkiye, but also in Canada, France, Italy, Spain and the United Kingdom. In the euro area, sovereign spreads over German government bonds have widened.
