Hormuz reopening may not stop Iran war’s food inflation ripple – BBG
The Iran war’s impact on food prices could linger long after the Strait of Hormuz reopens, with Bloomberg tracing how higher fuel, fertilizer, freight and energy costs are feeding through supply chains from farms to bakeries.
The report tracked the production of a chocolate croissant made by a London bakery, showing how the US and Israeli attack on Iran in late February and the subsequent closure of the Strait of Hormuz sent shocks through global supply chains.
Bloomberg reported that the disruption pushed up prices for fuel, energy, fertilizer and other agricultural and industrial products. Even though the United States and Iran have agreed to an interim deal expected to reopen the strait, the effects are still moving through the food system.
Fertilizer was one of the clearest pressure points. By the time the interim deal was reached, more than 40 fertilizer-laden vessels were stuck in the Persian Gulf, according to tanker-tracking data compiled by Bloomberg and Kpler. Fertilizer flows through the Strait of Hormuz fell from about 600,000 tons a week in late February to 60,000 tons in early June.
The spike hit during the spring planting season, raising costs for farmers even though fertilizer prices have since fallen back toward prewar levels. A French farmer cited by Bloomberg said his off-road diesel costs had risen from €0.70 a liter before the war to €1.20, adding about €25,000 to annual expenses.
The pressure also moved through mills, exporters, truckers, bakeries and cafes. Bloomberg said dry-bulk freight rates have risen 22% since the start of the war, while logistics firms have imposed fuel surcharges after diesel prices jumped.
In Britain, 82% of food and drink businesses said they would have to raise prices because of the impact of the Iran war, according to a May report from the Food & Drink Federation cited by Bloomberg.
The federation’s chief economist, Liliana Danila, said that while the Strait of Hormuz is reopening, supply chains will take “another six months, at least” to normalize, and some energy infrastructure may take longer to repair. She said food manufacturers’ long-term contracts mean some price increases could take as long as a year to appear fully.
“Higher costs are now baked into the system,” she said.
