According to analysis, the Iran war will leave lingering consequences that do not end with a ceasefire. Even if a peace deal is reached, the structural impacts on the global trading system will continue to affect prices, contracts, balance sheets and political legitimacy.
The first wave is energy disruption, dragging up fertilizer and food prices. Natural gas accounts for 70-80% of variable costs in global ammonia production, so when gas prices rise, fertilizer prices spike within months. The Gulf region supplies about 30% of exported ammonia and 35% of exported urea globally, most of which passes through the Strait of Hormuz. Within 12-18 months, prices of manufactured goods will also climb. The shock from a tanker incident in the Persian Gulf would affect the price of bread in Cairo, rice in Dhaka and fertilizer for farmers in Kenya.
The second wave is structural damage to the trading system. After Houthi attacks on the Red Sea in late 2023, traffic through Bab el-Mandeb collapsed, forcing vessels to reroute around the Cape of Good Hope, adding 16-32 days to voyages and an extra US$1 million per trip. Even as security stabilised, traffic has not recovered because the fixed costs had already been absorbed.
The third wave is a complex economic hit to developing countries. Advanced economies can absorb the shock thanks to financial reserves, while poorer nations suffer shrinking imports, currency depreciation, fertilizer shortages and famine. Food costs account for 44% of household spending in low-income countries, compared with 16% in wealthy ones.
The fourth wave is political. Supply-chain shocks erode social contracts. The Arab Spring was partly triggered by a wheat price shock. The collapse of Sri Lanka’s government after the pandemic and turmoil in Pakistan in 2022-23 resulted from balance-of-payments crises driven by soaring energy prices. Inflation from an Iran war would land on already exhausted countries, and some governments may not survive.
The author urges three emergency measures: create a regional food and fertilizer reserve under the OIC or G77 framework, establish a war-risk reinsurance fund for developing countries, and reform how the IMF handles war-induced shocks — treating them as exogenous shocks rather than policy failures of the borrowing country, and providing rapid liquidity with minimal conditions.
