There is now a growing consensus across public panels and private discussions among policy makers and experts that the impact of the conflict in the Middle East on the global economy is likely to get significantly worse before it gets better — even if a lasting peace is negotiated soon.
And a food crisis stemming from a fertiliser crunch won’t be far behind.
The World Bank, International Monetary Fund and the UN World Food Programme warned last week that sharp increases in oil, natural gas and fertiliser prices triggered by the war will inevitably cause rising food prices and food insecurity.
In a joint statement, the leaders of the global institutions said the burden would fall most heavily on the world’s most vulnerable populations, particularly in low-income, import-dependent economies. They said their institutions would continue to monitor developments closely and “coordinate the use of all available tools to support those impacted by the crisis.”
IMF Managing Director Kristalina Georgieva has said the Fund is engaging with the United Nations’ Food and Agriculture Organisation on food security. The WFP said in mid-March that millions of people will face acute hunger if the war continues into June.
The conflict in the Middle East could push millions more towards hunger as its economic fallout reverberates further around the globe, according the World Bank’s chief economist. “You have about 300mn people who suffer from acute food insecurity already,” Indermit Gill said. “That’ll go up by about 20% very, very quickly,” as knock-on effects grow.
The blocking of the Strait of Hormuz, a key oil supply route, has sent fertiliser prices soaring since they rely on oil-based inputs. Higher prices for fertilisers, which are used in agriculture, may entice countries to halt food exports and hoard more food for themselves, further driving up food prices.
Low-income people across the world tend to spend a larger share of their earnings on basic needs like food and fuel. After downgrading its forecast and predicting the slowest growth the world has seen since the pandemic on Tuesday, the IMF’s chief economist, Pierre-Olivier Gourinchas, foreshadowed more downgrades to come. “Even if the war ends tomorrow, it would take quite some time for the recovery to kick in,” Georgieva told Bloomberg Television. “The impact is already baked in.”
The price of fossil fuels and fertilisers are intimately linked, says the UN Conference Trade and Development: Oil and gas processes provide inputs to its manufacture. Natural gas is used in the Arabian Gulf region to create urea, used in the nitrogen fertiliser that is critical to boosting agricultural yields.
Hormuz is a key choke point for exporting it.
This latest crisis – after the Ukraine war energy shock and the global health emergency of Covid – is also hitting “at a time when many developing economies struggle to service their debt”.
Rising global interest rates, in response to soaring inflation expectations, could exacerbate that struggle – making it hard for governments to take action to cushion the blow for vulnerable consumers. Import-dependent countries in Asia, Africa, and Latin America are particularly exposed to fertiliser shortages and rising input costs, according to the FAO.
While farmers in rich nations can count on support from their governments, concerns are mounting over some of the poorest economies. Higher food prices will complicate efforts by central banks to get a post-pandemic wave of inflation back under control.
The situation also presents a challenge for politicians, especially in emerging-market economies where food eats up a greater proportion of household incomes than it does in more industrialised nations. As many as 45mn more people could face acute hunger if the conflict in Iran doesn’t ease by the middle of the year, taking the total number to a record high, the WFP has warned.