The correct option is
B fought
Option C is the correct answer because 'fought' means a violent confrontation or struggle; engage in a war or battle. Since the sentence is already talking about a Third World War, which can be fought, option C is the most appropriate answer.
Options A, C and D are incorrect because 'caused' means to make something happen, 'initiated' and 'begun' mean started. None of these options can be used in the given blank because it would be illogical to say 'Third World War be caused/ initiated/ begun on the issue of water' as the meanings of these words do not fit in with the given context.