The war in the Middle East is sending shockwaves through global energy markets as the tensions spillover into the Strait of Hormuz, one of the world’s most important oil transportation routes. Former French economy minister Eric Lombard tells RFI the situation could trigger a major global economic crisis if it remains blocked.
Speaking as the conflict entered its 12th day, Lombard said rising energy prices and market volatility were already fuelling fears of inflation and weaker growth around the world.
Recent attacks on energy infrastructure across the Gulf have unsettled investors. A major refinery in the United Arab Emirates has closed after a drone attack, and an oil field in Saudi Arabia has also been targeted.
Shipping traffic through the Strait of Hormuz – a narrow channel between Iran and Oman through which much of the world’s oil passes – has also slowed sharply in recent days.
Lombard said France has enough oil and gas supplies for now, but warned that higher energy costs could still hit households and businesses if the crisis drags on.
RFI: Have we entered an oil war?
Eric Lombard: We have entered a serious crisis. But its consequences should not be compared with those that followed Russia’s invasion of Ukraine. If we look at France, we do not have a supply problem. That is very important. We have oil, diesel and gas reserves, and they continue to arrive because we have diversified our supply sources. The electricity grid is working. Three years ago some nuclear plants were shut down, but today the system is more stable. The economy is also fairly strong.
The serious issue is the near closure of the Strait of Hormuz. That affects prices, and France will feel this crisis through rising costs. The effect is immediate worldwide. Oil prices have risen, even if they have fallen slightly in recent days. This morning they were below $100 a barrel.
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RFI: They're around $87 per barrel of Brent at the latest count...
EL: And stock markets have fallen sharply. So this crisis is serious. If the Strait of Hormuz were to remain closed for a long time, we would face a crisis of major scale. The impact on the American and Asian economies would be huge. That is probably why it will not happen. We heard Donald Trump two days ago saying the war was over and portraying it as a limited operation.
RFI: Are you saying the economy could push Trump back to reality and encourage him to stop the war?
EL: The economy guides Trump’s decisions. There are also midterm elections before the end of the year. We remember what happened on what he called "Liberation Day" in April.
RFI: That was the day he announced tariffs?
EL: Yes. When he announced a 20 percent increase in tariffs, the American markets reacted very badly and two days later he stepped back.
RFI: So he faces the same kind of risk now?
EL: I am not inside the American president’s head. But pressure from financial markets and rising energy prices in the United States could push him to act faster than expected. Even if energy is abundant there, price increases would spread. Since the war aims are not clearly defined, he could decide they have been achieved. He could say: “We have destroyed part of Iran’s capabilities, so we stop.”
RFI: So withdraw and end it there?
EL: The advantage is that there is no withdrawal because it is mainly an air campaign. The planes simply return to their aircraft carriers and the operation ends.
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RFI: Meanwhile the Strait of Hormuz is almost paralysed. CNN reported that Iran has begun laying mines in the strait. You said the key question is whether the situation lasts...
EL: Yes, duration is the key point. The US may have thought the force of the first strike and the decapitation of the regime would make the Iranian government collapse. But that has not happened. It seems Mojtaba Khamenei, the son of Iran’s supreme leader, is even more hardline than his father. The Revolutionary Guards still control the country.
We do not see democratic forces in Iran that could bring down the regime. Instead we see a regime that is hardening – saying it will hold under the bombs and launching attacks every day against Gulf countries.
RFI: Notably with drones.
EL: Exactly. And those countries were not prepared for that, because they had relatively normal relations with Iran. We can also see that we do not really know how to defend ourselves against drones. All this is an argument in favour of calming the situation quickly.
RFI: At what point should we really start to worry?
EL: If the conflict lasts more than a few weeks – and I mean a very small number of weeks – the global economy will suffer serious effects. "Stagflation" means growth, which is already weak, could fall to zero or even turn into recession, while inflation rises again.
In France inflation is under control, but elsewhere in Europe it is higher. That would create serious problems for people’s purchasing power. We must always think of people in these situations. They are often the first victims, whether in the Middle East or here.
RFI: So if it does not last, there will not be an oil shock?
EL: If it does not last, balance can be restored very quickly. Mines are more serious because they are not easy to remove, while drones can simply stop being launched. I think the government is right not to take emergency measures yet. Let us first see how long the crisis lasts.
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RFI: What can governments actually do today? Apart from gritting their teeth and waiting.
EL: First they must inform citizens about the situation and explain what they are doing. They must reassure people about supply, because there is no supply problem.
If the crisis lasts, however, we no longer have the financial capacity we had during the Covid-19 pandemic to introduce broad support measures.
RFI: To be clear, you are saying there will not be an energy cheque to help French households pay for fuel?
EL: No, we will not do that. If we did, it would break our path of reducing the public deficit. Last year the deficit fell to 5.4 percent. The government is targeting 5 percent this year. If we leave that path, interest rates will rise again. Today, French borrowing rates have fallen below Italian rates.
RFI: So that option must be ruled out.
EL: Otherwise we would end up paying on financial markets what we tried to save by supporting households.
RFI: The European commissioner for energy has suggested countries that can afford it should cut taxes on energy. Is that a good idea?
EL: It is the same thing. It still means public money. However, if the crisis lasts, there should be targeted help for the poorest households. Many people need their car to get to work and go about their daily lives, especially in rural areas.
In that case limited aid linked to the extra cost would be justified. But it should concern no more than about 20 percent of the population.
RFI: So you're calling for a fuel cheque for the most vulnerable households?
EL: Yes, but only if the crisis lasts, which is not the case today.
RFI: What lessons should be drawn from this crisis, in terms of our dependence on oil and gas?
EL: There are two lessons. First, we have already begun to decarbonise our economy. The government’s energy planning strategy will allow the construction of six new nuclear reactors and more renewable energy. That strengthens our strategic autonomy.
The second lesson concerns military autonomy. Europe must make progress because today we are not sufficiently feared and we do not carry enough weight in this debate.
RFI: And on the military side?
EL: We have seen four years of drone warfare in Ukraine. Ukraine has found ways to defend itself, but the United States and the Gulf countries have not yet developed strong responses. Drones may be a weapon of the poor, but they are effective. We will also need to think about how to protect ourselves.
This interview has been adapted from an audio version in French and lightly edited for clarity.
