March 27, 2026
War in Iran will lead to food price inflation
A reflective postcard from Luxor.
To the point!
The prospect of higher food prices driven by the energy shock is bad news for all of us.
Since the joint offensive by the U.S. and Israel against Iran began, the Strait of Hormuz has been almost completely blocked. Tehran has choked off a vital trade artery on which all the states bordering the Persian Gulf – and millions of oil and gas users worldwide – rely. Only a trickle of ships is still making it through this chokepoint (see fig. 1).
Fig. 1: Daily crossings of ships through the Strait of Hormuz
February 1 through March 22
In Germany, public debate has so far focused mainly on higher petrol and diesel prices. Policymakers have rushed to roll out measures to curb the surge at the pump – with limited success. Yet fuel may soon turn out to be little more than a sideshow, albeit a very visible one thanks to the towering price boards that flank petrol stations. Fuel accounts for only about 3% of total spending in the average German household – hardly a dominant item.
The inflation risk in food prices
Spending on food in Germany is more than three times as high. And one thing is often overlooked: food and energy prices tend to move together. That is no accident. There is a lot of energy embedded in food – from tractors in the field to transport, refrigeration, processing and packaging, every step of the value chain requires energy as a critical input. As a result, energy and food prices largely move in tandem (see fig. 2).
Fig. 2: Oil and food prices move in tandem
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In anticipation of higher energy costs eventually feeding through into food prices, wheat prices have already risen sharply in recent weeks. We may just be at the start of a process in which higher energy costs gradually feed through.
A bottleneck for fertilizer
The Strait of Hormuz is not only critical for oil and gas shipments. Less well known is the fact that a third of all seaborne fertilizer worldwide is transported through this narrow waterway. Fertilizer prices, too, are tightly linked to energy prices. Natural gas is a key input in producing nitrogen-based fertilizers.
Since the war began, the price of urea, a nitrogen fertilizer, has jumped by almost one third – just as the planting season on the northern hemisphere gets under way.
Developing countries are hit hardest
The prospect of higher food prices driven by the energy shock is bad news for all of us. But it hits poorer countries far harder, especially those that, given their limited natural resources, are heavily reliant on food imports – notably in North Africa.
Consider Egypt, for example, from where I am writing to you today from the Valley of the Kings. On average, almost 1.5% of gross domestic product is spent on food imports. In some neighboring countries, the share is even higher (see fig. 3).
Fig. 3: Food imports
% of GDP, 2023
Egypt’s public debt stands at more than 80% of GDP, and household saving – constrained by low incomes – is scant. The country is therefore heavily dependent on foreign investors. After the war broke out, many of them simply pulled out . The result: since the war started, the Egyptian pound (EGP) has lost more than 10% of its value, pushing up the cost of all imports. With a trade deficit of just under 14% of GDP, that is a serious drag.
In trade in services, Egypt traditionally runs a surplus with the rest of the world, but even there the Iran war brings new risks. Tourism, which in 2024 generated 8.5% of total value added, is unlikely to benefit from fighting in the wider region. Not everyone is as adventurous as me and my family.
On top of that, a return to normal shipping through the Suez Canal – a key source of government revenue – could be further delayed after the attacks by Yemen’s Houthi rebels in 2024. Before 2024, the canal brought in about 70bn EGP (roughly 1.2bn EUR) a month; today, monthly revenues fluctuate between 40bn and 50bn EGP. All this is playing out in a country where percapita income, measured in purchasing-power terms, is less than 30% of the German level. It is an awful lot to bear at once. A repeat of the 1977 “bread riots” does not seem imminent, but people are being asked to endure a great deal.
A different perspective at the pump
So perhaps, the next time you fill up your car, it is some consolation to remember that elsewhere people are suffering the consequences of this war in ways that are far more existential than anything we are facing.
Dr. Moritz Kraemer, Chief Economist / Head of Research at LBBW
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