Middle East briefing: From inflation to impact

The ten items that follow show how this shock is moving through the food system, from immediate cost pressures to wider effects on consumer behaviour, commercial negotiations, workforce decisions and long-term resilience. Together, they highlight why food businesses need to look beyond headline inflation and take a broader view of exposure, confidence and response. 

1. Energy is the primary transmission route 

The conflict is affecting food primarily through energy markets, with oil and gas prices feeding directly into production, processing, packaging and logistics. Freight, fuel and insurance costs are also part of this transmission route, making the shock both immediate and lagged as contracts reset and hedges unwind. 

What it means: 
Energy should be treated as a core food system input, with exposure mapped across the full value chain rather than managed as a single cost line. 

2. Inflation risk rises in layers, not in isolation 

Food inflation risk is being shaped by overlapping pressures rather than a single external shock. Energy, labour, regulation, freight and upstream agricultural inputs are reinforcing one another, increasing both uncertainty and the likelihood that cost pressure lasts longer than expected. 

What it means: 
The challenge is not just the level of inflation, but the risk of persistent and broad-based cost pressure across categories and channels. 

3. Expectations are shifting ahead of prices 

Inflation expectations have begun to move before the full impact of higher costs has reached the shelf. As uncertainty rises, businesses and households are changing behaviour early, with confidence and trust becoming as important as the underlying cost base. 

What it means: 
Decision-making is already changing, with more caution, slower sign-off and increased scrutiny, meaning friction can build before headline inflation moves. 

4. Pass-through becomes the key commercial tension 

With margins already thin across the food system, there is limited capacity to absorb new costs. That makes pass-through the central commercial tension, with retailers more defensive on price image, suppliers pushing harder for protection and negotiations becoming slower and more positional. 

What it means: 
The question is no longer whether costs rise, but how quickly, how fully and where they land, increasing tension between suppliers, retailers and shoppers. 

5. Fertiliser creates a longer-term inflation tail 

Rising gas prices are feeding into fertiliser and other upstream agricultural inputs, with effects that emerge over time rather than immediately. This creates a longer inflation tail, especially where higher input costs influence planting, yields and farm-gate economics. 

What it means: 
Even if energy markets stabilise, food price risks can persist into 2027 and beyond through upstream agricultural cost dynamics. 

6. Demand is at risk as growth slows 

Higher energy costs act as a drag on economic growth by reducing real household incomes and raising business costs. The main market effect is not just higher prices, but weaker demand and a slower, more fragile recovery in food volumes and discretionary spending. 

What it means: 
The main risk is a slower and more uneven recovery in volumes, rather than a short-term inflation spike alone. 

7. Consumer behaviour shifts early and unevenly 

Consumers are already responding to higher energy costs and renewed inflation anxiety, often before new food price rises are fully visible on shelf. Confidence remains fragile and value-seeking behaviour can intensify quickly, with effects varying by income, category and channel. 

What it means: 
Expect earlier and sharper value-seeking behaviour, with uneven impacts across categories, channels and household groups. 

8. Workforce pressures intensify 

The conflict is adding to existing labour market pressures, as higher costs and weaker demand affect hiring, investment and operating decisions. Energy-intensive parts of the supply chain such as manufacturing, cold storage and logistics are particularly exposed, even where labour shortages remain unresolved. 

What it means: 
Businesses may respond with reduced hiring, delayed recruitment or productivity-driven restructuring, with implications for workforce resilience and regional employment. 

9. System resilience is being tested in real time 

The speed at which this shock has moved through energy, freight, confidence and costs highlights how exposed the food system remains to cascading global disruption. It also shows why resilience must move from concept to practical capability. 

What it means: 
Resilience is now a practical capability, requiring better visibility, scenario planning and faster decision-making under uncertainty. 

10. Leadership decisions must align across the system 

The effects of the conflict cut across pricing, procurement, demand forecasting, workforce planning and investment decisions. Because these choices are often made in different parts of the organisation, leaders need a shared view of how risk is building and where exposure is greatest. 

What it means: 
Leaders need a joined-up view of how shocks cascade, ensuring commercial, operational and workforce decisions stay aligned during prolonged uncertainty. 

IGD opinion: from shock to system response 

The Middle East conflict is not simply adding to food inflation; it is exposing where the food system is most vulnerable to energy, confidence and cost shocks. 

• Costs are rising, but not all at once or in the same places 

• Confidence and expectations are shifting before all prices have moved 

• Commercial, consumer and workforce pressures are becoming harder to separate 

• And thin margins leave little room to absorb prolonged shocks 

Taken together, this points to a longer period of pressure, where timing may shift but underlying exposure remains. 

For leaders, the challenge is not predicting every move in energy markets, but understanding how shocks transmit through the system, where pass-through will occur and which parts of the business are most exposed. 

Implications for industry 

• Map exposure across costs and contracts 
  Identify where energy, freight, labour and input pressures are already locked in and where they may emerge next 

• Stress-test demand and pricing assumptions 
  Plan for weaker confidence, slower volume recovery and tougher negotiations around pass-through 

• Protect workforce and operational resilience 
  Avoid short-term decisions that weaken future capability in manufacturing, logistics and frontline roles 

• Build resilience into decision-making 
  Use scenario planning, better visibility and stronger cross-functional alignment to respond faster under uncertainty