The UN Conference on Trade and Development (UNCTAD) warned on Tuesday that the reopening of the Strait of Hormuz, while bringing immediate relief to energy markets, leaves vulnerable economies exposed to prolonged increases in food and fuel costs. The strait, which normally carries about one-fifth of global oil and gas supplies, was effectively paralysed for over 100 days following joint US-Israeli strikes on Iran in late February.
Energy Markets Recover Faster Than Food and Transport Systems
UNCTAD's new report highlights that food and transport systems are likely to take longer to recover than energy markets, as disrupted supply chains need more time to reset. Although Brent crude has fallen sharply to around $73 a barrel, close to pre-conflict levels, following an interim US-Iran agreement, higher fuel, gas and fertiliser costs could continue to feed through into agricultural production, transport costs and household budgets.
Vulnerable Economies Face Prolonged Risks
According to UNCTAD, vulnerable economies remain particularly exposed to oil and fertiliser price shocks. Persistently high food prices could place further pressure on poorer households. The agency noted that a 5% increase in food prices can significantly raise the risk of childhood wasting. UNCTAD identified 61 vulnerable economies exposed to oil and cereal import shocks linked to the Strait of Hormuz disruption.
Cape Verde as a Case Study
Among the affected economies is Cape Verde, which relies heavily on imported fuel. The country has experienced rising electricity, transport and food costs that could continue even after energy markets stabilise. UNCTAD's analysis underscores that the ripple effects of the disruption will be felt for months, particularly in nations with limited capacity to absorb price spikes.
