Iran war disrupts global energy and fertilizer supplies

The Iran-Israel conflict has metastasized from a regional flashpoint into a global supply shock with inflationary consequences. Iran's Kharg Island, the country's primary crude export terminal, appears to have come to a standstill over recent days for the first time since the war began. Simultaneously, Russia's oil infrastructure is under sustained drone attack, with only one cargo loaded at Novorossiysk last week. Together, these disruptions are tightening global crude supplies precisely when demand remains resilient in Asia and the US is limiting naval transit through the Hormuz Strait.

Agricultural spillovers are acute. India, the world's largest buyer of diammonium phosphate, has contracted supplies at prices nearly 40% above pre-war levels. This cost shock threatens farm margins across Asia and could filter into food inflationThe rate at which prices rise across an economy. over coming months. The ECB's Joachim Nagel has signalled that rate hikes are increasingly likely if the conflict persists and inflation remains elevated. France's central bank survey shows the economy is faltering under the geopolitical shock, with growth expectations revised lower.

Energy importers face the sharpest margin pressure. Europe, heavily reliant on energy from Russia and the Middle East, is grappling with elevated input costs and supply uncertainty. Oil prices above 86 dollars persist despite some demand concerns. Energy exporters, by contrast, see windfall revenues, though geopolitical risk premiums complicate long-term project financing. Data centre and semiconductor firms face electricity cost headwinds, which could slow capex growth if sustained.

The debate centres on durationBond price sensitivity to interest rate changes.. If a ceasefire takes hold within weeks, markets will quickly reprice downward. If the conflict persists or escalates, central banks may be forced to choose between tolerating higher inflationThe rate at which prices rise across an economy. or raising rates despite growth headwinds, a scenario that would roil equities and credit markets. Oil derivatives markets are pricing in elevated tail risk through Q3 2026.