Video | Analyst: Tensions in the Strait of Hormuz are putting pressure on the Gulf region's economy

How does the tension in the Strait of Hormuz drive up global food prices?

As the tension in the Strait of Hormuz continues to escalate, rising oil prices, disrupted shipping, and supply chain pressures are causing ripple effects on the economy of the Gulf region.

Market analysts believe that from fuel price adjustments to pressure on airlines and service industries, the economic impact of the conflict is gradually becoming evident.

In the UAE, heavily affected by spillover impacts of the conflict, gasoline prices have started to rise since April, with an increase of about 30%, and diesel prices have surged by approximately 72%.

Fara Murad, Senior Market Analyst at UK financial firm IG Group in Dubai: For example, the UAE is an oil-producing country, so theoretically it shouldn’t be as severely affected as an importing country. But due to the global pricing mechanism, even local prices are influenced by the global market. Asian and European countries are affected more than the United States this time.

Additionally, shipping disruptions have triggered a series of chain reactions in the global agricultural sector, primarily causing a sharp rise in fertilizer costs and transportation issues. Currently, nearly half of the world’s urea and many other fertilizers are exported from Gulf countries through the Strait of Hormuz. If the situation remains unstable, it will significantly impact spring planting activities in northern hemisphere countries, thereby pushing up global agricultural costs and food prices.

Fara Murad, Senior Market Analyst at UK financial firm IG Group in Dubai: The impact is multi-layered. First, the most obvious is the rise in energy prices, which means the costs of all energy-dependent agricultural activities will increase. Second, fertilizer prices are rising, and due to supply chain disruptions, supply chain pressures are now very high. Transportation insurance costs are also rising. From production to consumption, this is the entire chain of the energy crisis. But we believe this may just be the beginning.

The latest report released by the United Nations Development Programme states that escalating conflicts in the Middle East could cause losses of $120 billion to $194 billion for Arab countries. The report indicates that the escalation of conflict is expected to result in the loss of 3.6 million jobs, increase regional unemployment by up to 4 percentage points, and push over 4 million people into poverty. Goldman Sachs previously estimated that if the conflict continues until the end of April, the GDP of Saudi Arabia and the UAE could shrink by 3% to 5%.

Fara Murad, Senior Market Analyst at UK financial firm IG Group in Dubai: Clearly, the affected industries include luxury goods, aviation, and services, all of which will be impacted and remain under pressure. The most severely affected is the aviation industry, where flights in the Gulf region have decreased, especially since this region is also a major transit hub for global flights, partly due to rising fuel prices.

Market analysts believe that this conflict exposes the Gulf countries’ over-reliance on the Strait of Hormuz as their sole external shipping route. In the long term, this conflict may force Gulf nations to further strengthen ground oil pipelines, railways, and highway networks to reduce dependence on the Strait of Hormuz.

Suhail Mazrouei, Minister of Energy and Infrastructure of the UAE: We are facing an unprecedented situation this time. The whole world needs to realize that if this crisis continues, there will be future shocks. We need to unite.