Economic Instability Deepens
Global markets are experiencing turbulence as the war between the U.S., Israel, and Iran continues, raising concerns about stagflation. Germany's DAX dipped 2% in early trading, falling below 22,000 points, a 12% decrease since the initial attacks on Tehran on February 28. Several key Asian markets logged losses exceeding 3%. The executive director of the International Energy Agency, Fatih Birol, warned that the current economic instability could prove more severe than the two oil shocks of the 1970s and the aftermath of Russia's 2022 invasion of Ukraine combined, calling the situation a "major, major threat" to the global economy.
Supply Chain Disruptions
Beyond energy, the conflict is disrupting global food supply chains. Shipping routes for Tanzanian avocados are blocked, and air freight capacity is down. The Tanzania Horticultural Association warned its members that shipping lines suspended bookings for consignments across all routes and market destinations, including Europe, the Middle East, India, and China. Transform Trade, a campaign group, reports some smallholders are accepting prices as low as 50% of the usual rate, or struggling to sell at all.
Food Crisis Concerns
The rising cost of fuel and fertilizer is exacerbating the food crisis. Natural gas is used in the Gulf region to create urea, a key component of nitrogen fertilizer, and Hormuz is a critical export point. UNCTAD data from 2024 indicates Sudan sources over half of its fertilizer via Hormuz, while Sri Lanka sources more than a third and Tanzania 31%. The UN World Food Programme warns that an additional 45 million people could face acute hunger if the conflict continues and oil prices remain above $100 a barrel, with sub-Saharan Africa and Asia most severely affected. Staple food costs have already increased by 20% in Somalia.
Regional Impact on Iraq
Iraq is increasingly caught in the middle of the conflict between the U.S. and Iran, deepening its economic woes. The Oil Ministry announced a case of force majeure on all oilfields developed by foreign oil companies due to Strait of Hormuz disruptions, halting most of the country's crude exports. Al Jazeera reports that oil revenues account for 90% of Iraq's revenues. Air strikes have targeted the headquarters of the Iran-aligned Popular Mobilisation Forces in Baghdad.
Geopolitical Maneuvering
China is likely to remain neutral in the conflict, according to Han Shen Lin, director of the China Office at the Asia Consultative Group. Iran has used Spanish Prime Minister Pedro Sanchez's condemnation of the conflict as "illegal and inhuman" on missiles targeting Israel. Images show these messages in English and Persian on weaponry.
Actions to Mitigate Fallout
British Prime Minister Keir Starmer is chairing an emergency meeting on the economic fallout from the war. India's Prime Minister Narendra Modi stated the country has sufficient energy supplies, while acknowledging the conflict creates unprecedented challenges. Sweden's government will temporarily cut the duty on vehicle fuels to reduce the inflationary impact. Kenya Airways plans to add flights as seat occupancy rises due to passengers avoiding conflict zones.
Potential De-escalation
European stocks reversed sharp declines after President Donald Trump said there had been "very good" talks with Iran and that he was postponing military strikes on energy infrastructure. However, U.S. Treasury Secretary Scott Bessent said the United States may need to "escalate" its attacks against Iran to be able to wind down the war. Trump's deadline for Iran to reopen the Strait of Hormuz or face attacks on its power plants ends at 3:14am on Tuesday for Iran.
