Energy Shock: Which Nations Stand Most at Risk

The ongoing conflict in Iran threatens to spark a global energy crunch that could ripple through economies worldwide. Some countries are more vulnerable than others, depending on how they use and import energy. In Europe, memories of the 2022 war in Ukraine still echo. Germany’s manufacturing sector, heavily reliant on cheap energy, has felt the sting of higher costs for the first time in years. A large stimulus package will help, but future budgets may not allow much more relief. Italy also depends on oil and gas for a big part of its energy mix, making it sensitive to price swings. Britain’s power grid relies on gas more than other European nations, so rising gas prices drive up electricity costs. A temporary price cap could ease inflation but might force higher borrowing rates, tightening the country’s fiscal space. Japan imports most of its oil from the Middle East and sends a large share through the Hormuz Strait. Coupled with a weak yen, this creates inflationary pressure on everyday goods and food.

The Gulf states feel the direct hit of a blocked Hormuz Strait, which could halt their oil exports and shrink an economy that had been growing. Smaller economies like India also import most of their crude oil through the same chokepoint, leading to higher fuel costs and even shortages in local markets. Turkey faces potential refugee flows from Iran and a tightening of its monetary policy, while the central bank has already sold reserves to support its currency. A handful of fragile economies are on the brink. Sri Lanka has declared state‑worker holidays to control energy costs, while Pakistan has increased petrol prices and cut school days. Egypt battles rising fuel and food prices, a dip in tourism revenue from the Suez Canal, and debt repayment challenges due to a weaker currency. Each of these nations faces unique risks, but all share one common threat: an energy shortage that could destabilise their economies and push citizens into hardship.

Actions