US-Iran tensions lift food inflation risk

Rising geopolitical tensions have pushed oil prices higher and increased uncertainty for businesses. However, energy markets have remained relatively stable compared with previous periods of disruption and current price movements are not sufficient to warrant a change to IGD's latest food inflation forecast. 

What’s happening? 

Commercial ships in the Strait Of Hormuz area have been hit by weapon fire. US and Iranian forces have also exchanged fire.  

Speaking at a NATO summit in Turkey, President Trump stated that the ceasefire between the US and Iran, which began on 08 April, is now over. 

He indicated that negotiators could continue to talk but expressed doubt that a fresh agreement could be reached. 

The International Maritime Organisation (IMO) has advised shipping operators to avoid the area – this would leave around 6,000 sailors trapped on ships in the region. 

Prices for crude oil have risen over the last few days, moving up about 6% to $77 per barrel, but this is still well below the price seen immediately pre-ceasefire. 

These events do not affect only the US and Iran. Other nations in the Persian Gulf area are affected directly, both as combatants and through their strategic dependence on the Strait of Hormuz. 

Non-Gulf nations are affected less directly, through their need for goods from the area, especially energy commodities and fertilisers. Fertiliser remains a particular watchpoint, as production relies heavily on natural gas and a significant share of global supply originates in the Gulf region. 

What does it mean for food businesses? 

Shipping in the area restarted when the ceasefire began but remained well below the usual level. Failure of the ceasefire is therefore likely to have limited impact on movement of goods for food businesses. Instead, the main risk comes from higher energy prices. The key point for food businesses is not the politics, but the renewed uncertainty. 

For the moment, the key question for food businesses and food inflation is what will happen to global prices for oil and gas due to failure of the ceasefire. 

A return to higher prices would have broad economic impacts, pushing up the cost of production and transport, whilst reducing the confidence of shoppers and investors.  

The global food system would share in this process, with high costs for businesses and reduced volume demand. 

Even if energy prices remain under control, the uncertainty created by recent events will no doubt create caution amongst investors and commercial leaders - uncertainty is always bad for business. 

What does it mean for food inflation? 

Fuel prices are an input to IGD’s food inflation forecast. The current version assumed that the ceasefire would hold, allowing energy prices to fall gradually towards the long-term average. 

Under these circumstances, UK food and drink inflation is expected to average 3.3 – 4.3% in 2026, although many risks apply, especially those connected to weather. 

At the time of writing, energy prices are moving up, responding to the resumption of fighting and diplomatic uncertainty but, so far, the energy market response has not been dramatic. 

What does it mean for IGD’s forecasts? 

The situation remains uncertain and current energy price movements are not sufficient to justify revising IGD's food inflation forecast. However, recent developments mean the assumptions underpinning the forecast have become more uncertain. The forecast was based on the assumption that Middle East disruption would ease, and energy markets would gradually normalise. That assumption is now less certain, with risks skewed to the upside if higher oil, freight or fertiliser costs persist.