13th September 2026
There is a new and increasingly worrying question surrounding the war between the United States and Iran.
Not simply When will it end? But What happens if it doesn't?
Some commentators are now discussing the possibility that the conflict could continue for many months, potentially even a year.
That is not a prediction that the war will last that long. Wars can change direction very quickly, particularly when major powers are involved.
But it is a scenario worth considering because the economic consequences of a prolonged conflict would be very different from those of a short-lived military confrontation.
Oil would be only the beginning.
The first problem is oil
Brent crude has already moved above $100 a barrel and recently pushed beyond $105 as the conflict intensified. That matters because oil is not just something that goes into a car or lorry. It is an input into almost everything that moves around the economy.
Petrol and diesel become more expensive. Transport costs rise. Aviation becomes more expensive. Agriculture faces higher costs for machinery and fertiliser. Manufacturing becomes more expensive. Food distribution costs increase.
And the effect does not necessarily stop when the oil price comes down. Businesses that have signed contracts at higher transport and energy costs may continue passing those costs through to customers for months.
The longer the disruption continues, the more likely the temporary oil shock becomes a wider inflation problem.
But there is another cost that is easier to miss
One of the most important consequences of the conflict is the rapidly increasing cost of moving goods through the region. The Strait of Hormuz is one of the world's most important energy routes.
When ships face the possibility of missile, drone or other attacks, the owner of a tanker does not simply ask whether the voyage is technically possible. The owner asks whether it is financially worthwhile and insurable. That changes the economics of the whole operation.
War-risk insurance premiums have risen dramatically as the danger to shipping has increased. Reports have put premiums for some vessels travelling through Hormuz at several per cent of the value of the ship, compared with much lower levels before the conflict.
For a very large tanker, that can represent millions of dollars. One recent estimate put the cost of insurance for a 270,000-tonne tanker at about $21 million at the quoted rate.
That cost eventually has to be paid by somebody. And ultimately, that somebody is usually the customer.
Tankers are not the only ships affected
This is where the economic consequences become much wider. A tanker carrying oil is an obvious target of concern. Shipping companies also have to consider whether container ships, bulk carriers and other commercial vessels can safely operate through dangerous waters.
If ships avoid the area, they may have to take longer routes. Longer routes mean more fuel, more crew time, more ships tied up in transit and fewer available vessels elsewhere.
That can push up freight rates around the world. The result is a kind of hidden tax on international trade. The goods may still arrive ut theby cost more to move. That cost eventually finds its way into prices.
The Red Sea adds another complication
There is a particularly worrying development here. The Middle East now has problems at both ends of some of the world's most important shipping routes.
The Strait of Hormuz is under severe pressure, while the Iranian-backed Houthis have been increasing their influence around Yemen and the Bab el-Mandeb Strait. Reuters reports that Houthi advances in Yemen are creating an additional threat to another major shipping corridor.
That matters because the Red Sea is an alternative route for some shipping.
If both corridors become increasingly dangerous, the world's shipping industry has fewer alternatives.
That is when the consequences could become much more serious.
A year would change the calculation
A short disruption could produce a sharp oil-price spike followed by a rapid recovery. A year-long disruption would be different. Businesses would start changing their behaviour.
Oil companies would look for alternative supplies. Countries would use strategic reserves. Shipping companies would redesign routes. Manufacturers would look for different suppliers.
Businesses would build larger inventories. Some companies might move production closer to their customers. In other words, the world economy would begin adapting.
That adaptation would help reduce some of the physical shortage utb it would come at a price. A more expensive and less efficient global trading system is an inflationary system.
And then there is interest rates
This may ultimately be one of the most important consequences for Britain. The Bank of England wants inflation to fall. A prolonged oil and shipping shock could push inflation in the opposite direction.
That creates an unpleasant dilemma. If the economy is weak but inflation remains high because of energy and transport costs, cutting interest rates becomes much more difficult.
The European Central Bank has already raised its interest rate to 2.5% while warning that the Iran conflict is creating longer-lasting inflationary pressures.
Britain could face the same dilemma in that higher oil prices push up inflation anhd igher inflation makes interest-rate cuts harder. Higher interest rates make mortgages and business borrowing more expensive. That weakens demand.
So the economy can end up with the worst of both worlds with higher prices and weaker growth.
The British consumer would feel it in several ways
The first impact would probably be at the petrol station. Then heating and transport costs. But the less obvious costs could eventually be more important.
A supermarket does not only pay for the food it sells.
It pays for the lorry bringing the food to the distribution centre, the refrigeration, the packaging, the electricity, the warehouse and the final delivery to the shop.
A prolonged rise in energy and freight costs can therefore work its way through the entire supply chain.
For people already struggling with household budgets, another period of food and energy inflation would be particularly difficult.
Scotland and the Highlands are not insulated
It would be a mistake to assume that the problem is mainly one for London or large industrial centres. Remote areas can actually be particularly exposed to transport costs. Goods already travel considerable distances to reach Caithness.
Fuel costs affect almost every business that depends upon road transport. Higher freight costs can affect building materials, food, machinery and other goods.
And there is another issue.
Scotland has an important energy-producing economy, but producing energy does not necessarily mean households are protected from international prices.
Oil is traded in a global market. So a higher world oil price can benefit producers while simultaneously increasing costs for consumers.
That is one of the great paradoxes of energy security.
The Government would face another problem
A prolonged conflict would make the Chancellor's job considerably harder. Higher inflation could increase the cost of public-sector pay settlements. Higher fuel and transport costs would increase the cost of running public services.
Defence spending would remain under pressure. And weaker economic growth would reduce some tax revenues. At the same time, households would be looking to the Government for help.
This is how an overseas conflict can eventually become a domestic budget problem.
There is one reason not to panic
There is also an important reason for caution before assuming the worst.
Oil markets are remarkably adaptable. Supplies can be redirected and strategic reserves can be released. Producers can increase output. Consumers reduce consumption when prices rise. Shipping companies find alternative routes. And diplomatic agreements can change the situation almost overnight.
Indeed, oil prices have previously fallen rapidly when fears over Hormuz disruption eased.
So a price of $105, $120 or even higher does not automatically mean that the world is heading towards an economic catastrophe.
The duration of the disruption is crucial.
The real danger is persistence
That may be the most important lesson. An oil price of $110 for a few weeks is one problem. An oil price around $110 for a year is something entirely different.
The same applies to insurance.
The same applies to freight.
The same applies to inflation.
The same applies to interest rates.
A temporary shock can be absorbed. A persistent shock begins changing economic behaviour.
And that is why the possibility of a year-long war deserves attention even if nobody can say today whether it will happen.
The danger is not simply that oil becomes expensive.
It is that energy, insurance, shipping, food, manufacturing and borrowing costs all become more expensive at the same time.
That would create a much broader economic shock.
Britain has spent years trying to recover from weak productivity, high debt and sluggish growth.
A prolonged Middle East conflict would make that job considerably harder.
The good news is that there are still many ways in which the situation could improve.
The bad news is that if the war continues and the world's major shipping routes remain under threat, the economic consequences could become progressively more deeply embedded.
For Britain, the question is therefore no longer simply “How high could oil go?”
It may be: “How long can the world economy operate with a permanent war-risk premium built into almost everything that moves?”