As global geopolitical tensions and economic shifts unfold rapidly, the conflict in the Middle East holds many implications across multiple sectors globally, including energy, which require business leaders to adapt accordingly.

KPMG global head of energy and natural resources Regina Mayor said the conflict in the Middle East sat at the intersection of geopolitics, energy markets, global trade flows and financial and economic outcomes.

“Leaders today – you don't have the luxury of time to fully process what's happening before you have to make decisions and act with confidence,” she said during KPMG’s Global Economic Geopolitical Outlook webinar on March 31.

As the conflict moved into a prolonged, structurally unstable environment, KPMG International global geopolitics lead Stefano Moritsch outlined three possible scenarios – the base case, the best case and the worst-case scenarios.

With this in mind, he explained that the base case scenario included a cycle of re-escalation.

In this scenario, he explained, disruption became embedded across multiple systems, while energy markets remained volatile and reacted quickly depending on the status of the war.

The best-case scenario, which he said was unlikely, included the prevailing of “back door diplomacy” where there could be a temporary halt in strikes and efforts to find a negotiated settlement that could lead to the gradual resumption of normal vessel traffic through the Strait of Hormuz.

“But even then, shipping will recover probably only partially, and the threat environment will persist – the threat of drone strikes, asymmetric attacks, cyberattacks [and] terrorism would remain there as long as there is a hostile government in Tehran towards the US, and so we would see, even in that scenario, investor confidence remaining quite cautious.”

The worst-case scenario, or the “scorched earth” scenario, could see an uncontrolled escalation if there is no way to maintain, control and reopen the Strait of Hormuz, even partially, which could push an escalation targeting Iran’s energy infrastructure.

As a consequence, Iran could further retaliate across Gulf energy infrastructure.

“If that happens, we could expect a severe, significant global economic shock.

“To understand why, we're probably not going to see a containment of the conflict in the short term, but at least a managed escalation. We just have to look at the strategic objectives of the parties involved.”

Hence, he said, the conflict had exposed enduring realities.

“The global economy remains deeply dependent on oil and gas, and despite years of talks about derisking, onshoring, reshoring, we are still bound together by choke points like the Strait of Hormuz, and we have very little or no substitute.

“So as a result, we have a new baseline where the global trading system is quietly repricing around the world, where the Strait of Hormuz is a war zone for the long term.”

Moritsch, therefore, highlighted key signals to pay attention to.

This includes looking at maritime activity in the Strait of Hormuz – shipping volumes, insurance cost trends and rerouting behaviours.

Additionally, he advised looking at aspects such as the activity of Iranian proxies, the rate of fire and US military posture.