Soaring energy prices may well have stabilised overnight, after what experts described as one of the most volatile days of oil trading in history, but even with Donald Trump pushing the narrative that the Iran war “will be over very soon”, the latest hit to the global economy from US foreign policy now looks increasingly like it could have long-standing implications for us all.

With practically zero shipping passing through the Strait of Hormuz, coupled with critical energy infrastructure across the Middle East still coming under daily attack from Iran, the price of crude oil peaked at almost $120 a barrel yesterday. (Natural gas futures also rocketed, reaching double what they were in mid-February.)

Prices since then have slipped back, helped by Trump’s suggestion he might soon call a halt to the conflict – though any pretence his administration was ready to end hostilities will have been blown out the water by defence secretary Pete Hegseth’s promise that “today will be, yet again, our most intense day of strikes inside Iran”.

But regardless of where they sit, and whether the conflict ends in a few weeks (as originally promised) or at a much later date (as is increasingly likely), it’s becoming apparent we’re facing a period of economic disruption not seen since the dark days of the Covid pandemic.

Economic disruption

Domestic fuel prices have already lurched upwards. AA data shows the average price of a litre of petrol up 3.7% to 137.8p, while diesel has jumped 6.2% to 151.2p in the 11 days since the US and Israel kicked off the war.

Inflationary pressures are now emerging on multiple fronts, as higher energy and fuel costs – compounded by disruption from displaced supply chains – takes hold.

A report published today by UN Trade and Development lays bare the stark realities of the conflict. Disruption in the Strait of Hormuz has led to a 97% fall in shipping since the end of February, while the cost of shipping oil has risen by as much as 72% over the same period.

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The cost of marine fuel – crucial for container ships transporting foods and commodities – has also rocketed, rising by 100% since 27 February.

And when fuel prices go up, so does the cost of fertiliser. With a third of global seaborne trade of fertiliser passing through Hormuz, it is little surprise that costs are up by as much as 20%, compared with last month.

As The Grocer reported last week, ‘war risk’ insurance premiums are also surging, with costs quadrupling in some instances. That means a ship and its cargo valued at $100m would have cost $250,000 to insure pre-crisis. Now, that could cost as much as $1m.

The ripple effects of inflation

All this inflation feeds into a host of other commodities, with Andrew Woods of price reporting agency Expana telling The Grocer that market sources are “expressing considerable concern about surging energy prices, especially in the container glass industry”.

Meanwhile, the surging price of oil “is also increasing prices for critically important feedstocks in the plastics industry, namely ethylene and paraxylene, which sources believe will result in climbing prices for products such as plastic bottles”, he adds.

Analysis of aluminium prices also shows the cost of the metal – widely used in food and drink packaging – is up 223.8% week on week and a whopping 699% year on year, according to data compiled by ChAI.

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Farmers are already bracing for these additional costs (and no doubt preparing to pass them on, too), according to the NFU, which warns “any price rises in the key inputs of diesel and fertiliser at this time of year could further undermine farm profitability”.

‘Upward pressure’

Given all of the above, Chancellor Rachel Reeves warned yesterday that the “movements we have already seen are likely to put upward pressure on inflation in the coming months”.

That sentiment was shared by the British Chambers of Commerce, which this morning warned the conflict would lead to slower growth, with GDP growth revised down to 1% in 2026 (from 1.2%) in its previous forecast.

Global uncertainty was expected to push UK inflation higher than expected, reaching 2.7%, before easing to 1.9% in 2027, it added, while exports were predicted to grow by just 0.7%, rather than its initial forecast of 1.8%.

“The recent escalation of conflict in Iran risks interrupting progress made on inflation,” said BCC head of research David Bharier. “Much depends on the duration of the conflict. Covid supply shutdowns showed how sudden stops put long-term damage into the trading system.”

“Businesses expected to be steering through choppy waters again this year, but global events have just made that voyage even more turbulent,” added BCC economic advisory council chair Vicky Pryce.

How long those choppy waters last will determine whether this war goes from a global blip to a full-blown financial crisis.

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