The current oil and ‌gas crisis triggered by the blockade of the strait of Hormuz is “more serious than the ones in 1973, ​1979 and 2022 together”, the head of the International Energy Agency (IEA) has warned, as Donald Trump’s deadline for Iran to reopen the waterway approached on Tuesday.

Fatih Birol, the executive director of the IEA, told ⁠Le Figaro newspaper that the impact of the Middle East conflict on the oil market was larger than the combined force of the twin oil shocks of the 1970s and the fallout of Russia’s invasion of Ukraine.

Birol also warned that the countries most at risk were developing nations ‌which ⁠will suffer from higher oil and gas prices, higher food prices and a general acceleration of inflation, while European countries, Japan and Australia would also suffer.

Oil traded at more than $110 a barrel on Tuesday, before dipping in volatile trading, after Donald Trump said all of Iran could be “taken out” in one night.

Brent crude, the international benchmark for oil prices, rose by 1% to $111 a barrel, before slipping back to $109.40 as traders watched for developments in the Middle East.

New York light crude rose 2.6% to $115.3 a barrel, before slipping to $112.72, up just 0.25%.

Investors are growing increasingly anxious as Trump escalates his threats against Iran, demanding it reopen the strait of Hormuz as part of any deal to stop the war.

“Markets are once again on edge as the US-Iran conflict enters a critical phase, with investors effectively trading against another countdown clock set by the Trump administration,” said Daniela Hathorn, a senior market analyst at Capital.com.

“The situation has evolved into a near-term binary outcome: either escalation through direct strikes on Iranian infrastructure, or a last-minute de-escalation that could trigger a sharp reversal in risk assets. For now, the absence of a clear path forward is keeping markets volatile and indecisive,” Hathorn added.

The US president, speaking to reporters at the White House on Monday, set a deadline of Tuesday 8pm ET (1am BST Wednesday) for Iran to agree a deal with Washington or face fresh attacks on civil infrastructure, including power plants.

“The entire country can be taken out in one night, and that night might be tomorrow night,” Trump said.

Trump said that passage through the strait – a vital shipping channel through which a fifth of the world’s oil and gas supplies normally passes – was a “very big priority” and should be part of any ceasefire deal.

Stock markets in Asia were mixed on Tuesday, with Japan’s Nikkei flat and South Korea’s Kospi rising by 1.1%. Hong Kong’s Hang Seng dropped by 0.7%.

In Europe, the UK’s blue-chip FTSE 100 index dipped in early trading before turning positive, up 33 points or 0.3% by mid-morning to 10,467 points. France’s Cac 40 rose by 1.2%, with Germany’s Dax 30 up 0.7% after an early drop. The Stoxx Europe 600, which tracks the biggest companies on the continent, gained 0.6%.

Markets have been choppy since the US-Israel attack on Iran in February, as the effective closure of the strait of Hormuz has fed fears around inflation and rattled investor confidence.

On Monday, Kristalina Georgieva, the head of the International Monetary Fund, warned that the war was likely to lead to higher inflation and slower global growth.

Georgieva told Reuters that before the war began the IMF had expected a small upgrade in its expectation for global growth of 3.3% in 2026 and 3.2% in 2027. Instead, she said, “all roads now lead to higher prices and slower growth”. The IMF is expected to publish its report on the world economic outlook next week.

“We are in a world of elevated uncertainty,” Georgieva said, citing geopolitical tensions, climate shocks, demographic shifts and advancements in technology. “All of this means that after we recover from this shock, we need to keep our eyes open for the next one.”

The Iran war is also pushing the British economy towards stagflation, a poll of purchasing managers at UK companies found. Service sector growth was the weakest in 11 months in March, the data provider S&P Global reported on Tuesday, owing to falling business and consumer spending caused by concerns about the impact of the conflict in the Middle East.

“The inevitable conclusion from this morning’s final PMI numbers for March is that the UK is in for another bout of stagflation, even if the conflict ends soon. If it drags on longer, a recession looks likely,” said Thomas Pugh, the chief economist at the leading audit, tax and consulting company RSM UK.