Oil and food price rises – the imminent costs of the new Gulf War

By Matthew Parish, Associate Editor

Wednesday 4 March 2026

Oil is not priced like a normal commodity in wartime—it is priced like an insurance contract. The moment the Strait of Hormuz becomes in practice non-navigable for commercial traffic, crude ceases to be a story about marginal supply and demand and becomes a story about whether the world can still move energy through one narrow channel without being shot at.

That is why the first move in prices has been sharp. Brent has already jumped into the low-to-mid $80s as markets digest disrupted shipping, cancelled war-risk insurance and physical damage to regional energy infrastructure. But the more important question is not what happens in the first forty-eight hours—it is where the price settles if closure, partial closure, or intermittent closure becomes a condition of life for weeks or months.

The arithmetic of Hormuz—why the market panics

In normal times traders argue about inventories, refinery margins, OPEC quotas and the pace of shale decline curves. In a Hormuz crisis, the first fact is brutally simple: around 20 million barrels per day of oil and petroleum products have been flowing through the strait in recent years—roughly one-fifth of global consumption—and a sizeable share of global LNG trade, particularly from Qatar, also transits the same waters. 

Those figures matter because there is no substitute corridor with anything like the same capacity. Saudi Arabia and the UAE have pipelines that can bypass Hormuz to the Red Sea or to Fujairah, but they cannot replace the whole flow—and the pipelines themselves become targets if the conflict becomes a campaign against hydrocarbon infrastructure rather than a sequence of symbolic strikes. Once insurers withdraw cover, “open” can still mean “closed”—because tankers and crews do not sail into a kill-zone for free. Reuters and other reporting indicate that this is precisely what is happening—ships anchor, crossings fall sharply, and freight rates spike. 

This is the point markets will keep relearning: a maritime chokepoint can be closed without a formal blockade. You only need enough drones, mines, missiles, sabotage, ambiguous threats and a handful of burning ships to shift behaviour.

A plausible price range—three scenarios

Forecasting a single number is theatre; the proper task is to frame ranges that correspond to real-world pathways.

1) Short disruption, rapid de-escalation (days to two weeks): Brent roughly $90–$110

If naval forces manage to reopen traffic lanes quickly, if damage to export terminals and gas processing is limited, and if major consumers release strategic stocks, then the market may settle into a war-risk premium rather than a scarcity premium. This is the zone many banks and analysts often cite for a serious but temporary disruption—Goldman Sachs has previously sketched a scenario in which a partial disruption could push Brent briefly to around $110. 

Even here the world still pays—shipping insurance, longer routes, higher freight, precautionary stockbuilding—yet the system remains broadly intact.

2) Prolonged de facto closure and intermittent infrastructure shutdowns (several weeks): Brent roughly $110–$150

This is the scenario anticipated by many commentators—a conflict that appears likely to last for a significant period, with Gulf infrastructure closures (Saudi oil refineries, Qatari LNG production facilities) compounding shipping paralysis. Under such conditions, it is not only crude supply at issue; refined products become scarce in specific regions, diesel spikes, and power markets wobble as LNG cargoes cannot move normally. Reuters has already noted severe moves in diesel and gasoline futures alongside the surge in crude. 

In this middle scenario, prices do not simply jump and then calm down—they grind higher as inventories are drawn down and buyers compete for barrels that do not need to pass through the Gulf. Freight becomes a second oil price—because a barrel that exists but cannot be shipped is economically similar to a barrel that does not exist.

Some analysis explicitly anchors this range—reports and briefings have suggested that a blockade-like disruption could lift prices into the $120s or around $130. 

3) Escalation into a systematic campaign against Gulf energy systems (months): Brent can spike towards $150–$200, with extreme prints above that possible but less sustainable

Here one must separate what can print on screens from what can persist. If export terminals, gas processing plants, pumping stations or key pipelines are repeatedly hit—and repairs cannot be carried out safely—then the market is no longer pricing a disruption: it is pricing the temporary loss of a large part of global supply capacity.

In such circumstances very high numbers are not fantasy. Officials and commentators sometimes throw out dramatic figures—up to $300 has been mentioned in public discourse.  But prices at that level would be self-destroying: demand would collapse, recession would bite, emergency rationing and subsidies would spread, and governments would release strategic reserves with fewer inhibitions.

So the more credible framing is this: in an extended, infrastructure-targeting war, a spike into the $150–$200 range is plausible—especially if the conflict expands in ways that affect more than one producer at once—yet the very violence of the price would trigger counter-measures that pull it back.

Why strategic reserves may not “solve” it

Strategic petroleum reserves can smooth a shock; they cannot substitute for a functioning Gulf. Their real value is time—time for diplomacy, time for naval protection, time for logistics to re-route, time for demand to adjust. Reuters has highlighted that the US and China hold large reserves that could be critical in containing a shock. 

But time is not the same thing as supply. If the strait remains effectively shut reserves become a bridge to whatever comes next—and whatever comes next may include rationing, emergency fuel subsidies, industrial cutbacks and an ugly battle over who gets the last marginal barrel.

The inflation channel—energy, then everything else

Oil does not only raise fuel costs—it raises the cost of moving all goods. That is why wartime oil shocks become cost-of-living shocks. Reuters has already cited analyst estimates that even a 10 per cent increase in oil prices can add about 0.2 percentage points to headline inflation in the euro zone. Academic work by the IMF finds that historically a 10 per cent increase in global oil prices has often lifted domestic inflation by around 0.4 percentage points in the short term, although effects vary by country and policy regime. 

Those averages conceal the politics. Where governments cap prices, they import the shock into budgets and foreign exchange reserves. Where they do not, the shock hits household purchasing power and becomes a political event—particularly in import-dependent states.

The fertiliser link—urea, the Gulf, and food prices

The Gulf urea export channel is not a footnote. It is one of the fastest ways a Gulf war becomes a global food story.

Urea is a nitrogen fertiliser—it is effectively “food made from natural gas”, and the Gulf has been a dominant exporter because it sits atop cheap gas and well-developed petrochemical infrastructure. Current reporting indicates that Middle East suppliers account for roughly 35 per cent of global seaborne urea trade. If Hormuz is disrupted, Kpler (a maritime vessel tracking service) has previously estimated that urea supplies could fall by around 30 per cent annually, with sulphur and other fertiliser inputs also heavily affected. 

Markets are already reacting. Reports indicate urea prices jumping sharply—one account cites a move to roughly $550 per tonne from the high $480s/low $490s in a very short window.  The mechanism is the same as oil: supply risk plus shipping risk plus insurance risk—then panic buying by importers who remember 2021–2022.

How does that translate into food prices?

In practice a sustained Gulf disruption would likely lift global food prices through two interacting effects—higher energy costs across the supply chain and higher fertiliser costs that reduce yields or raise production costs. The World Bank has previously emphasised how high fertiliser prices can become a significant obstacle to food production and aggravate food insecurity. 

Geopolitical and geoeconomic consequences—what follows from $120 oil

If Brent sits above $110–$130 for long, the consequences are not subtle.

Where to place the centre of gravity

Given the information currently in the public domain—oil already surging into the $80s, major shipping disruption, war-risk insurance withdrawal, and reports of infrastructure shutdowns—the most plausible near-term centre of gravity is not $90. It is a period of unstable pricing with a bias upwards—Brent in the $110–$150 band if the de facto closure persists and attacks on infrastructure continue, with episodic spikes higher if a single dramatic event occurs—such as a major terminal hit or sustained damage to a critical pipeline.

The critical variable is duration. A crisis measured in days creates a premium. A crisis measured in months rewrites contracts, reroutes trade, reorders alliances and—through fertiliser and freight—reprices food.

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Appendix: the release valves that could cap oil prices

The purpose of this appendix is not to predict a diplomatic miracle. It is to identify the mechanisms that, if activated, can prevent a persistent Hormuz shock from turning into a 1970s-style macroeconomic crisis.

1) Strategic stock releases and coordinated consumer policy

Strategic reserves do not replace the Gulf. They do something else—they buy time.

Used intelligently, releases of strategic reserves can cap panic premiums by signalling that importers will not bid against one another for scarce prompt cargoes.

Used clumsily, they can waste finite stocks early and leave governments naked if the crisis lasts longer than expected.

The practical cap is political, not technical. Coordinated releases amongst OECD states, with a parallel Chinese release, are the strongest price-capping signal. Unilateral, scattered releases are weaker—markets interpret them as anxiety rather than strategy.

2) Pipeline bypass capacity and re-routing of physical flows

There is some bypass capacity around Hormuz—chiefly Saudi and Emirati systems that move crude to ports outside the strait. The release valve is real, but limited.

What matters is not headline pipeline capacity on paper but operable capacity under wartime conditions—available volumes, pumping stations functioning, staff able to work, and ports safe enough to load.

If the conflict shifts towards repeated attacks on pumping, storage, or export terminals, then the bypass valve narrows quickly. Security, not engineering, becomes the constraint.

3) Naval risk management and the return of insurability

A maritime chokepoint is often closed by insurance, not by geography.

If naval forces can create a credible regime of convoying, minesweeping, rapid incident response and punitive interdiction, then shipowners and underwriters may price risk rather than refuse it.

This is where the war-risk premium either stabilises or spirals. The moment the market believes the Gulf has become uninsurable for months, the oil price becomes an auction for barrels that do not require Gulf shipping.

If insurability returns, even imperfectly, prices can step down sharply without a peace agreement.

4) Spare capacity, discipline within OPEC+, and the politics of substitution

In theory spare capacity elsewhere can fill part of the gap. In practice it depends upon three things.

First—whether spare capacity exists in meaningful quantities and can be brought on stream quickly.

Second—whether producers choose to use it. Some may prefer high prices, but they must weigh revenue against demand destruction and recession, which eventually harms exporters too.

Third—whether substitution is actually deliverable. A refinery configured for heavy sour crude cannot always pivot smoothly to lighter grades. The barrel that exists may not be the barrel that a particular system can run.

If major producers choose to stabilise prices—by increasing output and maintaining credible compliance—this can put a ceiling on futures curves, even if physical scarcity persists in certain places.

5) Demand destruction thresholds and the recessionary ceiling

This is the most brutal release valve—because it is not a policy choice so much as a consequence.

At some price level consumption falls not because consumers become virtuous but because activity slows—fewer miles driven, fewer flights, reduced industrial output, postponed investment and rising unemployment.

The higher and longer the price spike, the faster this ceiling arrives. It caps the price by breaking the economy.

Governments fear this valve because it is socially destabilising. Yet markets assume it exists, which is why the most extreme numbers tend to be spikes rather than plateaux.

6) Financial conditions and the central bank constraint

A prolonged oil shock forces central banks into an unhappy corner.

If they tighten policy to suppress second-round inflation, they risk deepening recession.

If they loosen to protect growth, they risk entrenching inflation expectations and weakening currencies, which raises imported energy costs further.

The release valve here is credibility. A central bank that convinces markets inflation will be contained can help cap the oil-driven inflation spiral, reducing speculative momentum in energy markets. A central bank that looks politically captured adds fuel to the fire.

7) Emergency fiscal measures—subsidies, rationing, and their trade-offs

Price caps and fuel subsidies can blunt immediate political pressure, but they also increase consumption when supply is constrained.

They therefore often require rationing, targeted support or both; otherwise they become a budgetary bonfire that still ends in shortage.

In food markets the same logic applies. If fertiliser and freight costs surge, governments can subsidise fertiliser for farmers, subsidise bread for consumers, or impose export controls. Each measure shifts pain across borders and into diplomacy—particularly if several states adopt export controls at once.

8) Fertiliser-specific valves—urea substitution, planting decisions, and timing

Food inflation from urea disruption is delayed—but once it arrives it is stubborn, because it is baked into planting decisions.

There are three limited partial release valves.

Alternative sourcing: urea can be sourced from other producers, but the world’s marginal capacity is not infinite, and delivered prices may still jump due to shipping and energy costs.

Input substitution: some producers can switch towards nitrate-based fertilisers or blended products; but agronomy, local availability and cost constraints limit this.

Policy timing: governments can mitigate the worst outcomes by intervening early—fertiliser credit for farmers, targeted support for smallholders, and avoiding abrupt export bans that trigger panic-buying abroad. Late intervention tends to be more expensive and less effective.

9) Diplomatic bargains short of peace

Markets do not require a comprehensive settlement to reprice risk downwards. They need predictable rules.

A narrow “navigation understanding” that restores commercial passage—explicit or tacit—could reduce the war-risk premium, even if fighting continues elsewhere.

Similarly limited deconfliction arrangements around key energy infrastructure can stabilise supply expectations.

The problem is credibility. Any bargain that can be broken by one drone strike will be discounted until enforcement is visible—naval protection, penalties that are actually applied, and some shared interest in keeping export revenues flowing.

10) The hard truth—what caps prices is often what ends wars

Oil prices fall decisively when one of two things happens.

Either the physical system becomes reliably safe—shipping, terminals, pipelines and insurers returning to a normal calculus.

Or demand collapses, forcing prices down through recession.

Everything else—reserves, bypass pipelines, partial production increases—usually buys time. Time matters. But in a prolonged war, time is also the resource that gets consumed.