The Iran-US conflict has left a trail of economic fallout, with prices for essential goods and services remaining high even after a potential ceasefire. While the end of the war may bring some relief, the impact on consumers will be gradual and multifaceted. Here's an in-depth look at what to expect and why.
Gasoline Prices: A Slow Recovery
One of the most immediate concerns is the price of gasoline. The war disrupted oil supplies, leading to a spike in prices. However, the end of the conflict doesn't guarantee an immediate drop. Refineries typically buy crude oil months in advance, so even if oil prices fall, it may take weeks for cheaper products to reach the pumps. Michael Lynch, a distinguished fellow at the Energy Policy Research Foundation, explains, "The tendency of gasoline prices to fall slowly is partly because the raw material takes weeks to work through the system until it’s delivered to consumers."
In regions with limited refining capacity, like the West Coast of the US, the recovery will be slower. Mark Barteau, a professor at Texas A&M University, notes, "In places without enough refining capacity to meet their needs, such as the West Coast of the U.S., gas prices will take longer to drop."
Air Travel: No Cheap Tickets Soon
Airlines, too, are in a similar situation. They buy fuel in advance and adjust schedules gradually, meaning lower oil and jet fuel prices won't be reflected in ticket prices immediately. Columbia's Brett House predicts, "I think it’s unlikely that we’re going to see a retreat or reduction in the cost of flying at any point this summer."
However, there's a silver lining for consumers. Fuel surcharges, which airlines add to tickets, are one of the first areas where passengers might see relief. Gordon Ho, a professor at the University of Southern California’s business school, explains, "Consumers are going to say, ‘Wait a minute, why are you still charging me a fuel surcharge?’".
Grocery Prices: A Long Road to Recovery
The impact on grocery prices is another area of concern. Fuel accounts for a significant portion of food costs, and it can take months for an energy shock to work its way through the supply chain. David Ortega, a professor at Michigan State University, warns, "We’re likely still looking at inflationary pressure on food in the coming months."
Rabobank expects war-related food price inflation to peak next year in Europe, while the US Department of Agriculture predicts grocery prices will rise 3.2% this year, above the historical average. Farmers, too, are struggling with fertilizer shortages, which will have long-term consequences for crop yields and food prices.
Shipping Costs: A Slow Return to Normal
The shipping industry, too, is feeling the pinch. The closure of the Strait of Hormuz has affected global shipping, leading to higher costs and disruptions. Judah Levine, head of research at Freightos, notes, "The Straight of Hormuz closure has affected about 2% to 3 % of the total volume of container ships that are used for global shipping."
Josh Steinitz, chief strategy officer at ShipStation Global, predicts higher shipping costs and more out-of-stock items online until the end of the year. "I think fuel surcharges, which then flow into shipping costs, which then get passed along to consumers, are still going to be with us for quite sometime from many of the major carriers," he says.
The Broader Impact
The war's impact extends beyond these sectors. It has disrupted supply chains for fertilizer, food, and even footwear. Businesses expect higher costs to linger, which means consumers may need to prepare for continued price pressures. Brett House sums it up, "It is not clear, despite three months of war, that anything has been achieved that makes the American consumer better off. In fact, by almost any measure, not just the American consumer, but the world, is worse off as a result of this attack."
In conclusion, while the end of the Iran-US conflict may bring some relief, the economic fallout will be gradual and widespread. Consumers can expect a slow recovery in prices, with some sectors taking longer to return to normal. The broader impact on global supply chains and markets will be felt for months to come, highlighting the interconnectedness of our modern economy.
