Strait of Hormuz Reopens After Four-Month War, But Inflation Effects Persist

A memorandum signed Thursday between the parties reopened the Strait of Hormuz, ending nearly four months of conflict that disrupted global energy flows. Oil prices retreated to around $80 a barrel on Friday after reaching a peak of $118 in March.

Higher inflation has already been largely baked in across many economies, Simon MacAdam, deputy chief global economist at Capital Economics, said in a note this week. It can take many months for higher energy and fertilizer prices to be passed along food supply chains to end-consumers, he said. Prices of natural gas piped to households typically lag the upstream market by around three months.

The European Central Bank raised interest rates last week for the first time in nearly three years. Nine of the 18 voting members expect at least one rate hike before the end of this year. The Bank of England kept its policy rates unchanged but warned that even in the event of prompt conflict resolution there could be a logistical delay in restoring energy production and transportation.

The World Bank lowered its global economic growth forecast to 2.5 percent last week, the slowest pace since the pandemic. It expects global inflation to climb to 4 percent this year, up from 3.3 percent in 2025. Fertilizer prices could jump as much as 38 percent this year as supply disruptions ripple through agricultural markets.

Countries affected by the disruption are expected to bolster energy stockpiles, direct resources to ramp up domestic production, and pursue alternative supply routes.

“Ensuring that everyone has a certain level of buffer in peaceful times would provide that cushion against even a global contingency.”