Hormuz relief may not ease the economic toll that’s already ‘baked in,’ analysts warn

The recent signing of a memorandum between the U.S. and Iran to reopen the Strait of Hormuz has brought relief to global energy supplies, but the economic repercussions of the four-month war will linger for months to come, according to analysts.

While the normalization of shipping through the strait is a positive development, the impact of higher energy prices has already been felt across many economies. Simon MacAdam, deputy chief global economist at Capital Economics, highlighted that it could take several months for these price increases to trickle down to end-consumers. For example, prices of natural gas for households typically lag behind the upstream market by around three months.

Although oil prices have dipped to around $80 a barrel from a peak of $118 in March, Goldman Sachs has revised its forecast to average $80 in late 2026 and $75 in 2027. This adjustment is due to a quicker-than-expected recovery in Persian Gulf crude flows. However, ongoing supply disruptions and a backlog of vessels waiting to transit the strait could delay a full recovery in freight flows.

The World Bank recently lowered its global economic growth forecast to 2.5%, the slowest pace since the pandemic, with global inflation expected to rise to 4% this year. Fertilizer prices are also projected to increase by as much as 38% due to supply disruptions and shortages of key inputs from the Gulf.

Europe could face particular pressure as natural gas storage levels remain historically low. MacAdam anticipates that inflation in Europe and Japan could rise by an additional 3 to 4 percentage points as U.S. liquefied natural gas export prices increase.

Central banks, including the European Central Bank and the Federal Reserve, have been forced to reassess their monetary policies in response to the crisis. The Fed, under new Chairman Kevin Warsh, left short-term interest rates unchanged but raised its forecast for inflation. The Bank of England also kept its policy rates unchanged but warned of potential delays in restoring energy production and transportation.

The crisis has prompted a reevaluation of energy security strategies, with affected countries looking to bolster energy stockpiles, ramp up domestic production, and diversify supply routes to reduce dependence on a single chokepoint. Matteo Lanzafame, director at the Asian Development Bank, emphasized the importance of having buffers in place during peaceful times to mitigate the impact of global contingencies.

In conclusion, the reopening of the Strait of Hormuz is a positive step towards stabilizing global energy supplies, but the economic ramifications of the war will continue to unfold in the months ahead. Central banks and governments are adapting their policies and strategies to address the challenges posed by the crisis and ensure greater resilience in the face of future uncertainties.