India, Jan. 27 -- A direct military confrontation between the United States and Iran would not be limited to the battlefield and its economic impact would spread rapidly, affecting fuel prices, grocery costs, flight tickets and financial markets around the world. History shows that even small conflicts in the Middle East can drive up costs quickly with a full-scale clash would increase that effect many times over.

Oil would be the immediate casualty and Iran sits astride the Strait of Hormuz, a narrow waterway through which about 20% of the world's oil supply passes daily with any threat to this route would spook markets instantly. Analysts warn that crude prices, currently far below crisis levels, could surge beyond $120 per barrel with...