The escalating conflict between the US, Israel and Iran is causing the worst disruption to global energy markets since the 1970s. The effective closure of the Strait of Hormuz pushed oil prices briefly above $110 a barrel within days, while the shock spread to shipping, aviation and commerce, raising risks of a global recession and inflation, according to Global Data, a leading intelligence and manufacturing platform.
The most immediate major economic impact is through energy supply and ocean shipping. The Strait of Hormuz was closed to traffic after threats from Iran and tanker attacks, with around 200 ships stuck in it. Markets rallied sharply: Oil prices rose from around $70 to $110 a barrel within days, while Asian LNG spot prices doubled. Higher fuel costs feed directly into transportation and distribution, with U.S. diesel hitting a two-year high of $4.04 per gallon — raising the prospect of renewed inflationary pressures in many economies.
Recent developments in the Middle East will add weight to the risk of a slowdown in demand as global economic growth is higher than expected inflation and interest rates. Consumer and business confidence will suffer if the war continues. Stock markets have already lost significant value.
Any blow to economic growth will have a negative impact on underlying demand in automotive markets, with associated impacts on supply chain profitability. Pressure on real income due to higher-than-expected inflation and interest rates will affect purchasing decisions as will higher finance costs.
There will also be higher costs in materials and production that will be difficult to pass on to the end consumer, adding to pressures on profitability.
The Middle East region itself is directly and immediately affected.
For 2025, the Middle East light vehicle (LV) market is estimated to have sold 3m units, a third of which could be sold in Iran. Other important players include Saudi Arabia, United Arab Emirates and Israel.
This year, the Middle East outlook was initially one of growth as sales followed the upward trend across the region in recent times. However, as the situation regarding the Iran conflict is rapidly developing, analysts at Global Data have taken a more cautious stance on the LV forecast for 2026.
For 2026, Global Data has cut its Middle East LV forecast by 12.5%, from 3.1m units to 2.7m units. Almost half of this revision is driven by a downward revision to our Iran LV forecast, which was reduced by 20% from 950k units to 760k units. Global Data analysts emphasize that this is an early first pass, and the regional forecast risk here is clearly too great.
The situation remains fluid, and continued volatility is likely to weigh on consumer confidence, business sentiment, and cross-border business activity in the near term. For the automotive sector, this generally translates into delayed purchases, a tighter appetite for credit and increased caution among fleet operators and distributors. OEMs and vendors may also face higher logistics and insurance costs, as well as greater difficulty in forecasting demand and managing inventory.
The baseline global LV forecast for growth in 2026 remains unchanged at this stage. That is, global data projects the market to grow from 92 million cars in 2025, the best year of the decade, to 93 million cars sold this year.
While there have been downward revisions to around half a million units for 2026 since the start of the conflict, the focus is on the Middle Eastern markets themselves, and particularly the significant Iranian market.
Elsewhere, the focus of significant declines in LV markets in other regions will primarily come from economic pressures due to energy price shocks. Disruption of supply channels for oil and gas in the region is already affecting the prices of these commodities. This will inevitably feed through CPI to some extent including, but not limited to, Europe and North America. Added to this, higher inflation will put pressure on interest rates, whether it’s slowing the recession or restoring monetary easing. At the same time, costs related to vehicle production will also increase. All this is an added speed for vehicle sales.
All that said, at this point, the baseline forecast assumes that such an energy price shock will be fairly limited in nature. However, the increase in the energy crisis, still through high prices and a long period of recovery to low levels, could have some strong implications for the LV market.
Global data puts the risk on the order of 2-3 million cars in such an event this year, with drag for the next few years.
The Middle East conflict comes at a time when the auto industry is already facing significant industrial and commercial pressures. These include the cost of technological transfer, new protectionist tariff policies, DRAM chip supply challenges, lack of demand in core markets, and continued vehicle manufacturing capacity.
In addition to the direct impact on vehicle demand in the Gulf Cooperation Council (GCC) economies, rising global energy prices will add another layer of cost pressure to the highly energy-intensive supply chain in the automotive industry.
Steel and aluminum make up a significant proportion of vehicle and powertrain structures. Steel foundries and aluminum smelters are among the most energy-intensive processes. In addition, plastic and polymer components are also widely used in all automobiles, and these materials are almost entirely petrochemical.
Military threats in the Strait of Hormuz and transit disruptions elsewhere are already driving up logistics costs, with Drewry Maritime Research pointing to very large crude oil (VLCC) prices in March starting in 2026.
Much depends on the timing of the development of the conflict. While many at this stage assume a short period of disruption, there is the potential for massive escalation with significant and lasting effects for deep pressure on the already challenged auto industry.
“Middle East Conflict: Assessing the Initial Impact on Auto” was originally created and published by Just Auto, a brand owned by Global Data.
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