The International Energy Agency (IEA) has warned that the war in Iran poses a threat to the global economy. The conflict has already cut off much of the supply of oil from the Middle East, pushing prices much higher. In turn, fears of inflation are heightening. The rise in energy prices could raise costs across the supply chain, which would impact the prices for many goods and services. The last few days have brought some hope that the conflict may be nearing its end with both sides communicating.

• The IEA says the conflict in Iran has been worse on oil markets than the oil shocks back in the 1970s. The impact on the oil market could reach every country around the world. The IEA is concerned that oil production in the Middle East could be hindered for a relatively long time.
• The Strait of Hormuz remains effectively closed. On Tuesday, Iran began charging a transit fee to pass through the critical waterway. However, supply is an issue as several oil production sites have been struck and shut down during the conflict.
• Rising inflation has negatively impacted consumer and business confidence around the world. At recent meetings, several major central banks alluded to the uncertainty they are facing in making their monetary policy decisions.
• There are hopes that the conflict could end. The US provided Iran with a 15-point plan to end the conflict, which Iran rejected. Iran then provided five conditions of its own that must be met for a ceasefire.

Despite the communication, there are several conditions that both sides must decide on before an end to the conflict can be reached. While an end to the conflict would be encouraging news, the impact on the oil market may linger, which could hinder global economic activity, according to the IEA. Canada’s economy has seen periods of struggle but has historically rebounded and grown over time.

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