- The disruption of the Strait of Hormuz has triggered a risk-driven surge in global energy prices, which is gradually feeding through to higher costs across UK supply chains and consumer goods.
- Rising energy and fertiliser costs are expected to push up UK food prices over time, with initial impacts on crops and longer-term pressure on meat and dairy products.
- The crisis is likely to widen economic inequality, as lower-income households face disproportionate increases in essential living costs while wages lag behind inflation.
Since the conflict in the Middle East erupted, spikes in energy and agricultural prices have busied the minds of manufacturers, farmers, retailers, and consumers everywhere.
The conflict has led to the effective closure of the Strait of Hormuz. In 2024, around 20 million barrels of oil passed through the Strait, accounting for roughly 25% of seaborne oil trade globally. The Strait also transits a fifth of the global liquified natural gas (LNG) supply, largely from Qatar, the second-biggest LNG supplier in the world. LNG is integral for the world’s supply of fertilisers, essential for crop cultivation and broader agricultural systems.
Doga Usanmaz, Reporter at Trade Finance Global (TFG), sat down with Simon Geale, Executive Vice President, Procurement at Proxima, a leading specialist procurement and supply chain consultancy. They unpacked the immediate and longer-term effects of the disruption on global and UK markets, what consumers should anticipate, and how this could reshape trade flows and reamplify systemic inequalities.
Doga Usanmaz (DU): Since the conflict in the Gulf began, average UK petrol prices have risen by 4.68 pence, and gas prices have doubled. What drives these price spikes?
Simon Geale (SG): We could be forgiven for thinking that it’s purely a supply issue. We’ve seen just how high the volumes of oil and LNG that come via the Strait of Hormuz are. But what drove the initial price increases is the risk premium shock.
Prices are jumping because the market thinks fuel supply is riskier. Wholesale and fuel markets reprice immediately on this risk premium, but most retail categories follow with a lag as higher costs work through contracts and supply chains through things like freight, insurance, and energy.
The second order effect will be supply led if fuel does not start flowing either through the strait or alternative sources. As it stands, because of the scale of the problem, we are very likely to see a supply crisis and costs will remain elevated for some time whatever the outcomes.
DU: How high can consumers expect energy prices to go?
SG: It’s always difficult to say, but at least in the UK, we have the energy price cap set from April to 30 June 2026, with the expectation that energy prices will go down by 7%. So we’ve got a bit of sight on that.
From July onwards, we don’t know. I’ve seen analysts predicting anything from a 5 to 15% range, but ultimately I would expect it to be at the lower end of that. How high the wholesale price stays will depend on how long this goes on for, and whether or not some of the limited contingencies – capped measures designed to manage specific risks – can be put in place.
DU: To what extent will higher energy prices impact other parts of the economy, and where might consumers feel those pressures most strongly?
SG: Diesel and renewable diesel fuels are some of the first sectors to be impacted. You’ve then got power and heating, freight, insurance, and anything from manufacturers to retail and agricultural products. Multiple industries will be hit, from insurance to food, the packaging of those foods, and the cost of getting things delivered to your home.
But the weighting of that in terms of how much the prices will rise differs by industry and region. For instance, a large amount of the fertilisers that pass through the Strait are going to China and India.
In the UK, on the other hand, there is less direct dependency. We don’t have a great physical reliance on food or fertilisers coming through the strait, but we are exposed through global pricing mechanisms driven by gas markets. This means that UK food sales will face a secondary effect through the disruption in global fertiliser markets, and will see a slight lag on price changes across various sectors.
In the short term, you might see some crops, cereals, and agricultural products get hit. Goods like meat and dairy products are likely to be impacted in the longer term just because of the way that those costs work their way through the system and their reliance on a larger agricultural system that is now disrupted.
DU: What does this disruption in fossil fuel supply chains mean for renewable energy products? Could this conflict pave the way for the UK’s energy transition?
SG: That’s a really interesting question. I think that the transition to renewable energy – certainly the conversation around that transition – is going to get another boost. Businesses, in particular, will be looking at their risk registers and thinking about it, exploring how they could lobby for this and ensure that they’re running on renewables.
The byproduct of this disruption is that the costs associated with transporting and manufacturing certain chemicals (like sulfur) are spiking. The cost of producing renewable energies could arguably also go up. But the central dichotomy that an event like this underlines is that energy is one thing, and security is another. Homegrown power, or power from a friendly trading partner, becomes much more appealing.
DU: What are the economic and food-system implications of spikes in fertiliser prices?
SG: There is a tie between energy and fertilisers. Depending on the good farmed, fertilisers, in agricultural terms, make up 6 to 12% of the average farmer’s cost base. Because of how the grocery market functions, farmers will immediately feel the squeeze on the margin. If that becomes unsustainable, then we will see the effects of that creeping into the grocery stores. And we will see some of that risk priced in advance anyway.
For instance, if there is a 10% increase in fertiliser costs, you probably won’t see the corresponding 10% increase on the shelves, because the farming system will take some of that on in the margin. So the impact on consumers will be slightly lower.
But the effect will nonetheless be significant, particularly for those on lower incomes. How quickly this happens will depend on the product’s seasonal variability and demand. For meat and dairy, this could be a 9 to 18-month period.
Overall, the food system is feeling a shock from energy, fertiliser, and transportation costs. The worst possible scenario is that this bleeds into other types of costs as well. In such cases, we will see an already low margin sector squeezed further, which usually means suppliers falling into distress with contract failures, working capital squeezes, and inventory challenges.
DU: What alternative supply routes are available for energy and agricultural commodities?
SG: For oil, there are some workarounds through Saudi Arabia and the UAE in particular. But when it comes to LNG flows, it’s much trickier, and there are far fewer options.
Blocs have been forming for some years now, and this disruption could likely accelerate this trend. But it should be noted: every contingency adds a cost, whether that’s days or miles. There is no answer which keeps things as they are.
DU: How will rising prices for energy and agricultural goods affect inequality, both domestically within the UK and globally?
SG: The effects are most acutely – and disproportionately – felt by lower-income families, who spend a greater proportion of their weekly income on things like food, energy, and perhaps fuel. When staple goods and essentials go up in price, then the inequality gap between the poorest and the richest widens.
The second order effect of this is that wage growth will likely lag behind cost of living increases which will increase reliance on credit markets, driving many into longer term debt.
For the broader international order, this disruption means a system shock. Trading blocs form, and producers around the world start to evaluate their product mix, whether it’s still profitable and whether they should change things.
We may start seeing some winners emerge from the changing trading flows driven by this disruption. There could be acceleration in South-to-South trading, particularly in South-East Asia, and then in South America and some parts of Africa. In the Middle East, there is likely to be prolonged destabilisation, presenting challenges for local producers.
In the longer run, businesses are expected to start pricing in resilience. Previously, organisations consolidated sourcing so as to drive an optimum price. Today, they are looking at resilient supply chains as a competitive advantage, in the event that things go wrong.
In essence, we are seeing a shift toward a system where resilience is becoming an asset.
DU: How should policymakers respond to the rising energy prices?
Historically, the best approach for policymakers has been to keep visibility over what’s happening and establish targeted protection. This means that policymakers need to step in and put caps on certain segments of society and certain businesses.
There is also growing discussion surrounding energy dependency – particularly regarding our dependencies on places that are far away or are more volatile than some of our other trading partners.
