The aorta of the global energy economy has been clogged for more than a month now.
The closure of the Strait of Hormuz — the narrow waterway connecting the Gulf oil producers to global markets — has throttled worldwide energy production and driven up the prices of gasoline, diesel, fertilizer, plastics, and myriad other commodities.
This has led many Americans to fear that their rising energy bills are just the beginning — and that America’s ongoing conflict with Iran could push up grocery prices too.
And yet, that foot still hasn’t dropped. According to March’s Consumer Price Index (CPI), food prices were no higher last month than they had been in February.
What’s more, on Friday, the US and Iran reportedly reached a deal to completely reopen the strait for the duration of their ceasefire. A permanent peace agreement, however, has yet to be negotiated.
All this raises the questions: Are American grocery shoppers out of the woods? Will we be spared a war-induced spike in food prices? And what would happen if Friday’s news proves to be a false dawn — and peace talks ultimately break down?
To explore these questions, I spoke with Ken Foster this week, an agricultural economist at Purdue University. Our conversation has been edited for concision and clarity.
The war with Iran has yet to produce any discernible increase in food prices. Should that ease fears that Americans’ grocery bills are about to skyrocket? Or is this just the calm before the storm?
So, it takes time for an energy shock to work its way through the supply chain. Many oil and gas shipments that left the Strait of Hormuz at the start of this conflict just recently reached the ports that they were headed for. And many food producers are operating on contracts that are based on prewar energy prices. For example, think of all the food products that are transported by trains or trucks that run on diesel. Most of that diesel is pre-priced. So the impact of rising diesel costs may not work its way into that part of the supply chain for weeks.
Intermediaries in the supply chain — manufacturers, etc. — are also going to absorb some of that if they can, at least in the short run. They can’t absorb it forever, but they’ll try for a while. And then, retailers are hesitant to change their prices, due to competition.
Still, there may be some early signs that the energy shock is entering supply chains. This week, the government released new Producer Price Index (PPI) data. That report breaks the intermediate part of the food supply chain into four stages — the first being close to the farmer, the last being right before goods head to retailers. And it showed that prices at Stage 1 were 6.2 percent higher in March than a year earlier — and 2.4 percent higher than they were in February. Though, I’d be careful reading too much into those numbers, as the data was collected on March 10, so just 10 days into the conflict.
Is a substantial jump in food prices later this year already inevitable? Or could one be averted if a deal to reopen the strait holds?
At this point, I would avoid using the word “substantial.” If we see a return to something approaching normal shipping through the strait, then we probably will avoid big shifts in food prices.
But if the war persists past a certain point, the impact on food prices could compound, due to fertilizer costs. In North America, farmers generally purchased their fertilizer for the 2026 crop before the war started. So it hasn’t been as big a factor here as in Asia. But if the war starts edging into the 2027 crop year, then the impact of fertilizer kicks in and food inflation compounds.
If fertilizer is unlikely to drive food prices higher in the near term, what could?
Well, energy prices impact manufacturing, transportation, and infrastructure costs. And then there’s the packaging side.
If you think about our food today, we have such great packaging, which reduces food waste. But it is very chemical-heavy. There’s a lot of plastics, a lot of foams. They’re very energy-intensive. And that’s where we’re going to see pressure in the next three to 12 months, if the conflict continues.
So how quickly does the conflict need to wrap up in order for Americans to avoid substantial food inflation? Is there an inflection point?
Eric, if I could answer questions like that, I would’ve retired a long time ago. All I can say is that the longer the conflict lasts, the more difficult it is for distributors and processors to absorb this into their margins and not pass it fully on to consumers.
How much precedent do we have for this sort of disruption? Obviously, shocks hit the agricultural economy routinely — there are droughts and crop failures. But how much does this sort of crisis differ from those?
Crop issues are typically localized or focus on a few commodities. So, when they pass through the supply chain, consumers can substitute: If beef gets more expensive, they can eat more chicken. In an energy shock, there’s nowhere to hide. It passes through to the whole food economy.
As for precedents, we had the Russian invasion of Ukraine, which put some strain on energy, but also fertilizer and crops. Fortunately, none of the countries in the Middle East that are currently involved in this conflict are large food exporters. And the current energy shock is much larger already. So it’s not a perfect analogy.
You’ve written that, to the extent that we do see food price increases from this, they could last for a long time. Why is that?
Risk aversion, mainly. Producers and retailers don’t want to be the first to cut prices. And they don’t want to pull back and then find themselves in a loss position.
Historically, we’ve seen that food prices are slow to rise in cases like this, but even slower to taper off on the other end. Often, prices don’t decline at all; they just stop growing as fast. So, if we do see food inflation spike, consumers could feel the consequences long after the shock is over.
