In the early hours of February 28, 2026, the United States and Israel launched coordinated military strikes on multiple targets across Iran, marking a significant escalation in the longstanding tensions in the Middle East. This assault, described as targeting Iran’s missile arsenal and nuclear capabilities, has immediately sent shockwaves through global markets, with energy sectors bearing the brunt of the uncertainty. As a platform dedicated to helping Sri Lankans navigate taxes and finances, www.taxcalculator.lk explores how this geopolitical event could ripple into everyday economics, particularly through fuel prices and broader global stability.

Understanding the Event and Its Immediate Triggers

The strikes follow failed diplomatic talks and come amid Iran’s threats to regional security, including its nuclear program and support for proxy groups. Iran has retaliated by targeting US bases in the Gulf and launching missiles at neighboring countries, escalating fears of a protracted conflict. At the heart of economic concerns is Iran’s strategic position: it produces about 3.1 million barrels of oil per day, ranking among the world’s top producers, and controls access to the Strait of Hormuz—a narrow waterway through which 20% of global oil and a significant portion of liquefied natural gas (LNG) transit daily.

This chokepoint’s vulnerability cannot be overstated. Iran has repeatedly threatened to blockade the strait in response to aggression, a move that could disrupt up to 20 million barrels of oil per day. Even a partial closure or harassment of tankers could send insurance premiums soaring and reroute global shipping, adding billions in costs to the energy trade.

Surging Fuel Prices: The Frontline Economic Shock

Oil markets are already pricing in the chaos. Brent crude, a global benchmark, closed at around $72 per barrel before the strikes but is expected to jump sharply when markets reopen, potentially reaching $80 per barrel in a limited conflict scenario. Experts warn that a drawn-out war could push prices to $100 per barrel or higher, especially if Iranian exports (primarily to China) are halted or if the Strait of Hormuz faces sustained disruptions. In extreme cases, like a one-day blockade, prices could spike to $120-$150 per barrel.

Why does this matter? Higher crude prices translate directly to elevated fuel costs worldwide. For oil-importing nations, this means inflated import bills and upward pressure on inflation. OPEC+ members, including Saudi Arabia and the UAE, are considering ramping up production to offset losses—potentially by more than the planned 137,000 barrels per day—but their spare capacity may not fully compensate for a major outage. Global LNG prices could also rise if Gulf exports are affected, impacting energy-dependent industries from manufacturing to power generation.

Broader Global Economic Ramifications

The fallout extends far beyond pumps at gas stations. A surge in energy costs could fuel global inflation, potentially derailing interest rate cuts by central banks like the US Federal Reserve. Market analysts predict a “risk-off” environment: global equities could drop 1-2%, US Treasury yields might fall 5-10 basis points as investors seek safety, while gold and the US dollar strengthen. In a worst-case scenario of regime instability in Iran or wider regional involvement, oil volatility could tip the world into recession, reminiscent of the 1979 Iranian Revolution when prices doubled and global growth stalled.

Supply chains are at risk too. The Middle East’s role in global trade means disruptions could affect everything from electronics to food prices, exacerbating cost-of-living pressures in emerging markets. Asian economies, heavily reliant on Hormuz-transited oil (e.g., 50-75% for China, India, Japan, and South Korea), face acute vulnerabilities. Prolonged conflict might reduce global GDP growth by 1.5% and push inflation higher in energy-importing regions.

Implications for Sri Lanka: Higher Costs and Tax Considerations

As an oil-importing island nation, Sri Lanka is particularly exposed. Like neighboring India, which relies on the Strait for over 40% of its crude imports and faces a $2 billion annual hit per $1 price increase, Sri Lanka could see fuel prices rise sharply, straining household budgets and businesses. This might lead to higher transportation costs, inflated goods prices, and pressure on the rupee—potentially fueling inflation rates already sensitive to global energy shocks.

From a tax perspective, elevated fuel duties and VAT on energy could generate short-term revenue for the government but at the cost of economic slowdown. Businesses might face higher operational taxes if profits dip, while individuals could see disposable income squeezed, affecting income tax brackets. At www.taxcalculator.lk, we recommend monitoring fuel subsidies or relief measures that might emerge, and using our tools to recalculate your tax liabilities amid rising costs.

Looking Ahead: Uncertainty and Resilience

The duration of the conflict will dictate the severity of impacts—a targeted, short-term operation might limit damage, while escalation could reshape global energy for years. Diversification efforts, such as shifting to US LNG or renewable sources, offer long-term buffers, but immediate resilience lies in policy responses like strategic oil reserves and OPEC+ interventions.

In these turbulent times, staying informed is key. Follow www.taxcalculator.lk for updates on how global events intersect with your finances, and use our calculators to plan ahead. The world economy is interconnected; what happens in the Middle East echoes in Negombo and beyond.