Iran Conflict Sparks Surge in Oil Prices, Threatening Spain's Economic Growth

The escalating conflict between Iran and a US-Israel alliance has destabilized a crucial global energy region, resulting in soaring oil prices that pose serious threats to Spain’s economy. Iran, a key petroleum producer accounting for roughly 3% to 4.5% of global output and holding about 10% of the world's crude reserves, threatened to close the Strait of Hormuz—a maritime chokepoint through which 20-25% of global oil shipments transit. Such a blockade would create a severe disruption in global oil supply.

Merchant shipping reports confirmed the Strait’s closure, with Iran's Revolutionary Guard suspending maritime traffic following alerts from the UK Maritime Trade Operations. Spain, which imported around 16 million barrels of crude from this region in the first quarter of last year, could see a loss of over 5 million barrels monthly if the closure persists. Although some Gulf countries have limited pipeline alternatives to bypass the Strait, overall export capacity remains constrained.

The immediate economic impact is evident. Brent crude prices have surged to about $73 per barrel—the highest in seven months. Analytical projections from the Real Instituto Elcano anticipate oil prices could rise between $5 and $30 per barrel depending on the conflict’s duration. Each $10 rise in oil prices is estimated to reduce Spain’s GDP growth by approximately half a percentage point, potentially lowering growth from the government’s forecasted 2.2% to below 2%, or even down to 1% under adverse scenarios.

Globally, a $10 increase typically curtails economic growth by about 0.4%, with the International Energy Agency warning that a prolonged conflict could cause a 1.5% global downturn. Given Spain’s heavy reliance on imported oil, this disruption is particularly troubling, risking energy security and economic stability.

While Gulf suppliers produce significant liquefied natural gas, Spain mostly sources LNG from the US and Algeria, somewhat insulating it from natural gas supply shocks. Nonetheless, the tight oil market conditions remain a grave concern.

In summary, the Iran conflict's unfolding effects are sending oil markets into turmoil, endangering Spain’s economic performance and energy imports. The potential prolonged closure of the Strait of Hormuz marks a critical risk for Spain and the global economy alike, highlighting the interconnectedness of geopolitical tensions and economic outcomes.