Middle East Briefing: Resilience now critical

The conflict in the Middle East is already doing what geopolitics so often does to the food system: transmitting shock through energy, freight and confidence, and into costs.

Consumers are already feeling the shock, motor fuel prices are already rising and there is now a likelihood that that domestic energy prices will move higher later in the year when the energy price cap resets. That matters because energy is one of the fastest, and most powerful, routes into food inflation.

Energy prices affect food inflation immediately through oil, but also over time because food production relies heavily on energy. If energy costs stay high for longer, the increased costs gradually push up retail food prices.

What IGD’s updated food inflation forecast is telling us

Before the conflict escalated in the Middle East, IGD forecast that food and drink retail inflation in 2026 would average 3.3–4.3%, with around 3.8% most likely.

To understand how the conflict could alter the outlook, IGD has developed two illustrative inflation scenarios. These are structured assessments designed to show how food inflation might respond under different energy price shocks.

Both scenarios assume that the conflict is relatively short lived, followed by a return towards more normal market conditions.

Scenario 1: Short, moderate energy price shock

• Oil prices rise by around 50% (moving to US$105pb)

• Gas prices rise by around 63% (moving to 4.85 ppkwh)

• Disruption lasts around three months, followed by a relatively quick return towards long run averages.

Scenario 2: Short, intense energy price shock

• Oil prices rise by around 150% (moving to US$140pb)

• Gas prices rise by around 250% (moving to 10.45 ppkwh)

• Disruption lasts up to three months, followed by a return towards long-run averages.

To compare, in the aftermath of the invasion of Ukraine, oil prices peaked at US$120 and gas prices at 18ppkwh), so these scenarios seem reasonable.

Adding these scenarios to IGD’s forecasting platform suggests the following outcomes:

• Under Scenario 1, conflict would lift food inflation by around 1.0 percentage point in 2026, taking average inflation to an average of 4.8% for 2026.

• Under Scenario 2, inflation could be around 2.6 percentage points higher, lifting average food inflation to around 6.4%, peaking at over 8% in June.

Whilst markets are moving significantly, the last few days has seen oil prices rise further to $115 per barrel, above our Scenario 1 price expectation.

Immediate challenges

UK red diesel prices have risen by more than 60% in the past month.  Red diesel is the first input cost that would be fed through at a critical time of year, hitting planting, spraying, harvesting, and on farm logistics.

The Strait of Hormuz is a fertiliser chokepoint. Nearly 50% of global urea exports transit this route, and that around 20% of the world’s LNG, a key feedstock for nitrogen fertilisers, also moves through the Strait. Overall, around one third of global seaborne fertiliser trade passes through Hormuz. Urea prices have shot up nearly 70% since the beginning of year.

Fortunately, many UK farmers have purchased advanced purchased fertiliser for this growing season although those that have not are likely to be caught out. Over the long term, the duration of the conflict really matters.  If there were to be significant availability issues or high prices for fertiliser later in the year, this will have a significant impact on food prices and yields for years to come. The risk is structural; its feeds into cropping decisions, yields, and ultimately the cost of food at the farm-gate.

The new commercial environment

The war in the middle east reminds leaders that the new commercial environment, shaped by a global pandemic, climate breakdown and rising global tensions is one defined by chaos, risk and resilience.

Risks can be linear but often when they are most impactful, they are unforeseen and cascading.  There is no reason to say that this energy shock could not coincide with another adverse event, for example extreme weather, further compounding cost pressure on food production and distribution.

Our own framing of food system risk reflects that. In our report released last year, geopolitics sits alongside climate change at the top of the list. The point is not to rank them as competing priorities. They interact and compound.

What businesses can do, beyond absorbing cost

The first step is to make resilience a strategic input, not a contingency. We at IGD are working on developing a practical framework for response to improve commercial outcomes.  We will be sharing more in the coming months but there are clear distinct areas that business can tackle:

• Identify Risks - what are the challenges across your supply chain, what is your exposure, and can you prioritise?

• Assess Preparedness - do you have governance, funding and decision maker capability to act?

• Take Actions - what activities protect commercial returns, where do you need policy support, and where can you unlock pre-competitive collaboration?

These steps strengthen your businesses preparedness. An event like the closure of the Strait of Hormuz is where strategic foresight and scenario planning becomes a competitive capability. Not because it predicts black swans, but because it builds organisational muscle, faster decisions, clearer trade-offs, and supply chain flexibility when the world moves.

What government needs to do, and why domestic resilience is not optional

The case for national resilience is becoming explicit and why the national security framing is no longer rhetorical. The Canadian Prime Minister, Mark Carney, at Davos in January captured it simply “a country that cannot feed itself, fuel itself or defend itself has few options”. 

Food security is national security, and resilience needs to be treated accordingly, in policy, in investment, in how we judge economic success.

England’s new Land Use Framework sets out a long-term vision to protect food security, restore nature, and build resilient landscapes, with food production recognised as a core priority.

That is the direction of travel we need, because the UK’s underlying exposure across specific categories, namely horticulture and poultry, is clear.

Horticulture matters because it impacts health, relies on imports, and faces climate risks. Our recent analysis shows it’s the UK’s most climate-exposed sector, but relaxing planning rules in the UK could double protected vegetable output; unlocking £1 billion in investment.

How IGD can support

Our inflation scenarios are there to support leaders across the food system to move faster while uncertainty is high and the organisations that thrive will be those that plan for volatility and invest in resilience.

If you want to go deeper on what the forecast means for your business or want to understand how IGD can support your resilience strategy, we would love to chat.