Iran War Disrupts Global Commodities, World Bank Warns of Inflation Shock

Disruption spreads far beyond oil

A World Bank report issued last month details how the war in Iran is driving inflationary pressure and denting global growth well beyond energy markets, reaching food, industrial metals, chemicals, plastics and fertilisers, according to the World Socialist Web Site's review of the findings. The disruption centers on the closure of the Strait of Hormuz, a chokepoint the Financial Times estimates carries 50 percent of the world's seaborne sulphur trade, 34 percent of crude oil, 29 percent of liquified petroleum gas, 19 percent of liquified natural gas, 19 percent of refined oil products, 13 percent of chemicals including fertilisers, and 10 percent of aluminium.

Energy and fertiliser prices surge

The World Bank now projects its energy price index will rise 24 percent this year, roughly 40 percent above what was expected in January. That baseline assumes the most acute phase of supply disruption eases by May, an assumption the report itself calls increasingly shaky given oil prices climbed again in late April, briefly topping $120 a barrel. World Bank chief economist Indermit Gill said the war is hitting the global economy "in cumulative waves: first through higher energy prices, then higher food prices and finally higher inflation, which will push up interest rates and make debt even more expensive."

The bank's fertiliser index hit a post-2022 high in March, its second-largest jump in a decade, driven largely by a 50 percent rise in urea prices as seaborne exports from the Middle East stall. Base metals, already tight before the war, have worsened further: aluminium production and shipments have been directly impeded, while supplies of sulphuric acid, a key production input, have been curtailed. Aluminium prices are up 10 percent, the second-largest increase in ten years, and the bank expects aluminium, copper and tin to reach all-time highs, marking a third straight year of price gains.

Wider ripple effects across markets

• PlasticsToday reports commodity resin prices climbing as the war disrupts global petrochemical supply chains.
• The South China Morning Post reports China's factory-gate prices rose for the first time in three years as the conflict feeds through to industrial input costs.
• Trafigura estimates a cumulative loss of 1.5 billion barrels of Gulf oil output, equal to 5 percent of annual global supply, with the trading firm warning that figure could double.
• Asian buyers dependent on Strait of Hormuz tanker traffic are drawing down reserves, with South Korea tapering strategic releases and Japan's reserves expected to be exhausted this month, according to the Economist.

Central banks and the poorest countries most exposed

Central banks have so far held rates steady. The US Federal Reserve kept rates on hold at its latest meeting, though three members dissented, pushing to drop language suggesting a bias toward future cuts. The European Central Bank has also held rates, but inflation there rose to 3 percent last month, a level that could force a policy shift. The World Bank warned that tighter financial conditions, combined with trade tensions and policy uncertainty, risk broadly weakening demand.

The World Bank estimates that an extended conflict keeping oil above $100 a barrel could push up to 45 million more people into acute food insecurity this year. It also warned that higher fertiliser costs will likely reduce fertiliser use among farmers unable to absorb the price increase, threatening crop yields in future growing seasons. The bank said risks to its commodity price projections remain "markedly tilted toward higher prices," citing the possibility that Middle East supply disruptions could prove more severe and longer-lasting than assumed.