2026 Middle East Conflict and Its Ripple Effects on the Global Economy: Potential Supply Chain Chaos Beyond Oil

Key Points:- The ongoing geopolitical conflict in the Middle East, escalating in early March 2026, has disrupted global supply chains, limiting transit through the Strait of Hormuz and delaying international energy exports.- Beyond crude oil prices, a broader structural economic impact involves the sudden constraint of refined industrial inputs, notably elemental sulphur, agricultural nitrates, and semiconductor-grade helium.- The widespread suspension of maritime shipping has created logistics bottlenecks, generating a dual macroeconomic shock: a negative supply shock driving headline inflation, paired with demand moderation as escalating input costs compress corporate profit margins.- Central banks confront a complex policy dilemma reminiscent of the 1970s. Extensive monetary tightening to combat commodity-driven inflation carries the risk of tipping a transitioning global economy into a prolonged economic contraction.This is a reprint of HKUST IEMS Thought Leadership Brief no.107.