Why the US-Iran conflict faces a dangerous stalemate

March 27, 2026 (MLN): Sending shockwaves through the global economy, the United States and Israeli attack on Iran has triggered the largest energy supply disruption in history.

As the conflict enters its third week, the global economy faces immense pressure due to a near-total halt of shipping traffic in the critical Strait of Hormuz, a maritime chokepoint through which 20% of global oil supplies typically flow.

In a recent report by Goldman Sachs, it is warned that a quick resolution to the hostilities appears highly unlikely.

According to Sanam Vakil, Director of the Middle East and North Africa Programme at Chatham House, Tehran views the conflict as an existential regime-change war and is prepared to utilize its asymmetric drone capabilities to spread the conflict's costs.

Sanam Vakil notes that Iran has little incentive to end the war until it can secure guarantees for the Islamic Republic's long-term survival, which inherently includes sanctions relief.

Former US Middle East advisor Dennis Ross explains that while President Trump might prefer to declare victory after severely degrading Iran's nuclear programs and conventional military capabilities, the US cannot unilaterally walk away as long as Iran maintains control over who can export oil through the Strait of Hormuz.

To that end, Vice Admiral Kevin Donegan confirms that while US and allied military convoys could ensure safe transit through the Strait, they lack the capacity to restore oil flows to normal levels, potentially recovering only twenty percent of normal capacity.

The scale of the resulting oil shock is monumental.

The estimated hit to total oil flows from the Persian Gulf stands at 17.6 million barrels per day, representing 17% of global supply and marking the largest supply shock in history.

Flows through the Strait of Hormuz have plummeted 97%from normal levels.

This disruption has already driven oil prices significantly higher, with Brent crude exceeding $100 per barrel.

Goldman Sachs Commodities Strategists have outlined multiple medium-term scenarios regarding the disruption's trajectory and its resulting impact on energy markets.

The broader economic fallout from these elevated energy prices threatens to slow global growth while significantly boosting inflation.

Senior Global Economist Joseph Briggs estimates that a sixty-day disruption scenario would result in a 0.9% headwind to global GDP and a 1.7% boost to global consumer prices.

The Middle East and North Africa (MENA) region will bear the heaviest economic burden.

GCC economies could face their largest economic contraction in thirty years, with Kuwait and Bahrain potentially losing over a fifth of their oil production this year.

Qatar is also facing severe impacts, with missile damage to its Ras Laffan LNG plant expected to shut in seventeen percent of its LNG production for the next two to three years, potentially driving its total production down by up to one-third this year.

Furthermore, the GCC collectively is losing roughly $700 million in daily oil revenues, with total losses expected to approach $80 billion if the disruption lasts two months.

Financial markets have primarily priced this as an inflationary shock, leading to higher interest rates and broad appreciation of the US Dollar, but it is warned that a significant hit to global growth and earnings could be the next shoe to drop.

Domestically, US political pressures currently pose a limited constraint on the war's duration.

President Trump's approval rating has held steady at 42.6%, bolstered by strong support from his MAGA base.

However, rising retail gasoline prices, which are nearing $4 per gallon, could shift public opinion and create political friction.

In an effort to mitigate the price shock, the White House has declared a drawdown from the Strategic Petroleum Reserve of 172 million barrels over 120 days and waived sanctions on purchases of Russian oil currently on the water.

Ultimately, the path to a resolution remains remarkably murky. Ambassador Dennis Ross suggests that unless the US can decisively wrest control of the Strait of Hormuz, mediation potentially facilitated by Russia and spurred by Chinese pressure on Tehran may be the only viable off-ramp.

As the conflict extends without a clear end in sight, financial markets that have so far absorbed the crisis primarily as an inflationary shock may soon be forced to price in a severe contraction in global growth and corporate earnings.

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