Hormuz shutdown drives up energy and fertilizer costs, threatens food security in vulnerable countries
Missile strikes that closed the Strait of Hormuz have pushed oil and fertilizer prices sharply higher, raising inflation risks, straining energy-dependent countries such as Pakistan, and threatening food security in poorer nations.
Missile strikes on Feb. 28 that killed Iranian leader Ayatollah Ali Khamenei effectively shut the Strait of Hormuz, a waterway through which about 20% of the world’s oil normally passes. The closure has driven a sharp jump in energy prices and disrupted flows of fertilizers and other commodities that transit the route.
Global oil prices rose from under $70 per barrel on Feb. 27 to a peak near $120 before settling nearer $90. U.S. retail effects followed: the national average gasoline price climbed to $3.48 per gallon from just under $3 a week earlier, according to AAA data cited in the report.
The International Monetary Fund estimates that every 10% sustained rise in oil prices through the year would add about 0.4 percentage points to global inflation and could reduce world output by up to 0.2%. Economists warn the effective closure of Hormuz is a "nightmare scenario" because global spare capacity is limited and alternate supply routes cannot easily replace lost volumes.
Fertilizer trade is also affected. Up to 30% of world fertilizer exports pass through the Strait of Hormuz; disruptions in that corridor raise costs for farmers and could push food prices higher, increasing the risk of shortages in poorer countries that depend on affordable fertilizer and stable import flows.
Countries and regions are already taking measures to manage the shock. India is considering gas prioritization for households, Thailand has urged reduced travel, the Philippines adopted a four-day work week for some government agencies, and Vietnam is promoting remote work to reduce energy demand and mobility pressure.
Pakistan is highlighted as particularly vulnerable. The country imports about 40% of its energy, and reported disruption of LNG supplies from Qatar could raise domestic energy costs, increase inflationary pressure, and prompt monetary tightening by the central bank to defend price stability.
The crisis creates uneven effects across the global economy: energy importers and fertilizer-dependent farmers face higher input and consumer costs, while some oil-producing countries outside the conflict zone — for example Norway, Russia and Canada — may benefit from higher prices.
Central banks face a policy dilemma. Higher energy-driven inflation increases the case for tighter monetary policy, even as some policymakers hope to ease rates to support growth. Observers warned that policy errors similar to past decades could worsen inflation if authorities misread the persistence of price shocks.
Outlooks among economists vary. Some, including Eswar Prasad and Neil Shearing, say the economy could absorb the shock if oil prices retreat toward $70–$80 and the disruption is short-lived. Others, citing limited spare capacity and the scale of Hormuz-related trade, warn of prolonged inflationary effects and greater strain on vulnerable food systems.