Early signs of reopening in the Strait of Hormuz have eased the most acute threat to global energy markets, but months of economic pain remain ahead.
The U.S. and Iran signed a memorandum to open the strait, ending a war that has upended global energy supply chains, pushed inflation higher, and weakened the outlook for growth.
Even if shipping through the strait normalizes quickly, higher inflation has already been largely “baked in” across many economies, according to Simon MacAdam, deputy chief global economist at Capital Economics.
“It can take many months for higher energy and fertiliser prices to be passed along food supply chains to end-consumers,” MacAdam said, adding that natural gas prices to households typically lag the upstream market by around three months.
Oil prices retreated to around $80 a barrel on Friday, down sharply from a peak of $118 in March when the conflict was at its most intense.
Goldman Sachs cut its oil price forecast Tuesday, projecting Brent to average $80 in late 2026 and $75 in 2027, citing a faster-than-expected recovery in Persian Gulf crude flows.
A backlog of vessels waiting to transit the Strait of Hormuz could further delay a full recovery in freight flows even as political tensions ease.
The World Bank, which last week lowered its global economic growth forecast to 2.5%, the slowest pace since the pandemic, expects global inflation to climb to 4% this year, up from 3.3% in 2025.
Fertilizer prices could jump as much as 38% this year as supply disruptions and shortages of key inputs from the Gulf ripple through agricultural markets, the World Bank said.
Europe faces particular pressure because natural gas storage levels remain historically low, with MacAdam expecting inflation in Europe and Japan to rise by an additional 3 to 4 percentage points as U.S. liquefied natural gas export prices move higher.
The European Central Bank became the first major central bank to raise interest rates last week, marking its first tightening move in nearly three years.
The Fed, under new Chairman Kevin Warsh, left short-term interest rates unchanged Wednesday but raised its forecast for personal consumption expenditures inflation to 3.6% by December, up from 2.7% projected in March.
Nine of the 18 voting Fed members now expect at least one rate hike before the end of this year, underscoring how the Hormuz crisis has altered the calculus for central banks.
The Bank of England also kept policy rates unchanged but warned that “even in the event of prompt conflict resolution, there could be a logistical delay in restoring energy production and transportation.”
Alex Holmes, regional director at Economist Intelligence Unit, said central banks that have shifted to a hawkish stance are unlikely to reverse course quickly, with fuel prices and inflation set to stay elevated.
Food inflation faces additional pressure as a super El Niño threatens agricultural output in the coming months, Holmes added, compounding the energy shock already working through supply chains.
The crisis has also prompted governments worldwide to rethink energy security strategies, with affected countries expected to bolster stockpiles and pursue alternative supply routes.
“Ensuring that everyone has a certain level of buffer in peaceful times would provide that cushion against even a global contingency,” said Matteo Lanzafame, director at the Asian Development Bank, speaking at a virtual event Thursday.
