Early signs of the Strait of Hormuz reopening have lifted the most immediate threat to global energy supplies, but the economic fallout from nearly four months of war will persist for months.
The U.S. and Iran signed a memorandum on Thursday to reopen the strait, ending a conflict that has severely disrupted global energy supply chains, pushed inflation higher, and weakened the growth outlook.
Even with shipping through the strait returning to normal, 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 household gas prices 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 on Tuesday, projecting Brent to average $80 in late 2026 and $75 in 2027, citing a faster-than-expected recovery in Persian Gulf crude flows.
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 U.S. Federal Reserve, under new Chairman Kevin Warsh, left short-term interest rates unchanged on Wednesday but raised its forecast for personal consumption expenditures inflation to 3.6% by December, 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, reflecting how the Hormuz crisis has complicated the task facing policymakers.
Central banks that have shifted to a hawkish stance are unlikely to reverse course quickly, with fuel prices and inflation set to stay elevated, said Alex Holmes, regional director at Economist Intelligence Unit.
Food inflation also faces additional pressure as a super El Niño threatens agricultural output in the coming months, Holmes added.
The Bank of England kept its 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.”
The crisis has also prompted governments to accelerate a structural rethink of energy security, with countries expected to bolster stockpiles and pursue alternative supply routes to reduce dependence on a single chokepoint.
“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 on Thursday.