Hormuz relief may not ease the economic toll that’s already ‘baked in,’ analysts warn

Early signs that the Strait of Hormuz is reopening have eased the most acute threat to global energy supplies, but economic damages from the nearly four months of war will take months to unwind, analysts warned.

The U.S. and Iran signed a memorandum Thursday to open the Strait of Hormuz, ending a war that has upended global energy supply chains, pushed inflation higher and dented the outlook for growth.

But even if shipping through the strait normalizes, higher inflation has already been largely “baked in” across many economies, Simon MacAdam, deputy chief global economist at Capital Economics, said in a note this week.

“It can take many months for higher energy and fertiliser prices to be passed along food supply chains to end-consumers,” MacAdam said. Prices of natural gas piped to households typically lag the upstream market by around three months, he said.

Oil prices retreated to around $80 a barrel on Friday, down from a peak of $118 in March when the war was at its height. Goldman Sachs cut its oil price forecast Tuesday, projecting Brent to average $80 in late 2026 and $75 in 2027, citing a faster-than-expected recovery in Persian Gulf crude flows.

Higher energy costs and upstream supply disruptions would take longer to feed through to the downstream food and energy sectors. A backlog of vessels waiting to transit the Strait of Hormuz could further delay a full recovery in freight 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, even if disruptions to oil flows ease in the coming weeks.

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, it said.

Europe could face particular pressure because natural gas storage levels remain historically low, MacAdam said, 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 was the first major central bank to raise interest rates last week, its first tightening move in nearly three years.

Meanwhile, the Fed, 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 members expect at least one rate hike before the end of this year.

The trajectory underscores how the Hormuz crisis has altered the calculus for central banks trying to balance slowing growth against rising inflation.

The Bank of England also 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.”

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, he said, as a super El Niño threatens agricultural output in the coming months.

The crisis has also prompted governments to rethink energy security strategies. Countries affected by the disruption are expected to bolster energy stockpiles, direct resources to ramp up domestic production, 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,” Matteo Lanzafame, director at the Asian Development Bank, said at a virtual event Thursday.