Opinion｜Why Iran War Oil Shock Hits Harder Than Ukraine?

This article uses the 2022 Russia-Ukraine War and the 2026 U.S.-Iran conflict as parallel cases to explain two distinct mechanisms behind oil price increases. The former involved a supply redistribution following sanctions — Russian oil redirected toward China and India — allowing markets to gradually stabilize after adjustment. The latter stems from Persian Gulf transit risk, keeping prices elevated. From a theoretical standpoint, oil prices reflect both market uncertainty about the future and may already be affecting the real economy. With inflation still elevated and limited policy room, sustained high oil prices will gradually accumulate economic pressure.

The global economy runs on roughly 100 million barrels of crude oil per day. The United States accounts for approximately 20% of that demand, China around 15%, and Europe between 10% and 15%. At that scale, the daily physical crude market moves roughly $10 billion USD.

Yet what actually determines oil prices is not total volume — it is marginal change. In a system operating at such a high baseline, a shift of just 1% to 2% in supply or demand translates to millions of barrels per day of surplus or shortfall. That gap is large enough to trigger sharp price swings. Oil prices, as a result, do not move linearly. They respond rapidly to risk and uncertainty.

Comparing Russia's 2022 invasion of Ukraine with the 2026 U.S. and Israeli military operations against Iran reveals an important distinction: oil prices rose in both cases, but the market's response differed significantly.

Following the outbreak of the Russia-Ukraine War, crude prices climbed from $101.29 per barrel to $115.59 within one month — a gain of roughly 14% (first shaded region in the chart). Despite short-term volatility, prices stabilized over the following four months as markets absorbed the shock and reconfigured supply chains.

By contrast, the 2026 U.S.-Iran conflict drove prices from $71.32 to $121.88 per barrel within a single month — a surge of approximately 71% (second shaded region). No meaningful pullback has emerged since. The contrast in initial price response is stark: under 20% in the first month of 2022, versus over 70% in 2026, indicating that markets are pricing in risk far more aggressively this time.

The fundamental distinction between the two conflicts lies in the nature of the supply shock. Russia is one of the world's three largest oil producers, making 2022 a classic producer-side shock. Under Western sanctions, European buyers stopped purchasing Russian crude — but the oil did not disappear from global markets. It was redirected to China and India at a discount, while Europe sourced replacement energy from the Middle East and the United States. The result was a global supply chain realignment. Price increases were driven primarily by the friction and uncertainty of that transition.

The 2026 U.S.-Iran conflict represents a fundamentally different category: transit risk. Iran's own exports had long been constrained by sanctions. The real vulnerability is the Strait of Hormuz. Approximately 20% of global oil shipments pass through that chokepoint. If maritime passage is disrupted, the impact falls not on one country's exports but on the entire Middle Eastern supply system. Market attention has shifted from "who is selling oil" to "whether oil can reach buyers at all" — and that shift makes supply adjustment through trade far more difficult.

This structural difference is also reflected in how market adjustment mechanisms function. In 2022, the global energy market underwent supply chain rebalancing. Russian crude flowed east, Europe diversified westward, and price signals guided a gradual restoration of equilibrium. Oil prices rose sharply in the short term, but retreated as the realignment completed.

The 2026 scenario is closer to a physical supply severance. The Strait of Hormuz is currently under heightened restriction and operational uncertainty. If tanker operators — deterred by military risk or prohibitive war-risk insurance premiums — decline to enter the Persian Gulf, the question is no longer how supply is redistributed but whether crude can enter the market at all. This kind of rigid supply severance sustains upward price pressure and makes elevated prices far more durable.

Academic economists offer two distinct interpretive frameworks for the current price environment.

Drawing on research by Galí and Gambetti (2009, 2015), the critical variable is the origin of the price increase. If prices rise primarily due to shifting market expectations or demand dynamics, the macroeconomic impact tends to be contained. If the increase stems from supply disruption, however, the effect on output and employment is substantially larger. At present, no actual interruption in global crude supply has materialized. The rapid price increase more plausibly reflects markets pricing in future risk in advance — that is, an expansion of the risk premium. In this reading, price movements are driven more by "what might happen" than by "what has already happened."

A second framework takes a more direct position. Hamilton (1983) argues that oil price movements are themselves a significant source of macroeconomic shock. Even without confirmed supply disruption, a material price increase can suppress consumption and investment through cost-push effects and expectations channels. Under this framework, current oil prices function as a leading indicator — one that is already transmitting pressure into the real economy.

Incorporating monetary policy into the analysis sharpens the concern. When crude prices move from $70 to above $100 per barrel, the inflationary pass-through is direct and measurable. The U.S. Federal Reserve, however, is already operating in a high-inflation environment, constraining its ability to ease policy in response to growth headwinds. The result is a scenario in which elevated oil prices and elevated interest rates coexist — a combination that compounds pressure on investment and consumption simultaneously. In this context, the oil price increase is no longer confined to the energy sector. It is transmitting through financial conditions into the broader economy.

Taken together, the oil price increases of 2022 and 2026 reflect two distinct mechanisms. The former was driven by supply chain reconfiguration; the latter by uncertainty over transit system integrity. Current prices remain primarily a reflection of risk expectations — consistent with the analytical framework of Galí and Gambetti. But if those risks materialize, the impact will shift from price volatility to real-economy disruption: suppressed investment and consumption, and the kind of macroeconomic pressure Hamilton (1983) identified as structurally significant.

The central question, therefore, is not how high oil prices have risen, but whether the underlying risks will be realized. If the conflict de-escalates, prices may stabilize as they did in 2022. If transit bottlenecks persist — or escalate into confirmed supply disruption — high oil prices will endure longer and carry deeper consequences.

*The author is a Professor at the College of Management, National Taiwan Normal University.

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