Winners and Losers in the Global Economy as Iran War Continues

As the conflict in Iran drags on into its ninth week, market sentiment remains volatile, with uncertainty surrounding the resolution of hostilities. Oil prices have surged above £111 a barrel, reflecting the heightened tensions and deadlocked diplomatic efforts. The ongoing closure of the Strait of Hormuz, a critical passage for a significant portion of the world’s oil and gas supplies, has resulted in rising concerns regarding energy prices, food availability, and overall global inflation and growth.

The energy sector has recorded unprecedented profits, bolstered by elevated Brent crude prices and trading margins. Companies such as BP have reported their highest quarterly earnings since 2023, although disruptions in output due to attacks on energy infrastructure have tempered some of these gains. Shell has also cautioned on falling gas production following damage to its Ras Laffan facility.

Shipping has experienced substantial setbacks, with the threat of Iranian attacks on commercial vessels causing a dramatic reduction in transits through the strait. Prior to the conflict, approximately 130 transits per day were standard; this figure plummeted to 35 in early April. The logjam has left hundreds of vessels and thousands of seafarers stranded, as operators remain wary of the risks associated with traversing the area.

The finance and banking sectors face a precarious balancing act. With inflation stoked by the war, expectations for interest rate cuts have shifted towards the possibility of increases later this year. For British banks, rising rates could enhance lending margins; however, economic weakening could elevate loan defaults, posing significant risks.

Agriculture has not been immune to the turmoil, particularly as the strait is responsible for almost one third of globally traded fertilisers. Prices for nitrogen-based fertilisers have surged by more than 50 percent since the onset of the conflict, with direct implications for food inflation. The potential for a global food emergency looms, particularly impacting lower-income markets.

Retailers are bracing for the repercussions of delayed margin pressures as increased fuel and shipping costs begin to filter through to consumers. Major UK supermarkets have indicated that elevated energy and transport costs will likely pressure their profit margins. Although early signs suggest an absence of immediate impacts on food prices, longer-term implications are increasingly likely if the conflict persists.

Travel and airline sectors are grappling with soaring fuel prices and travel disruptions. The International Energy Agency has warned that Europe may experience jet fuel shortages in the coming months, a consequence of the ongoing volatility influencing fuel imports.

The technology sector is facing disruptions in the supply of helium, crucial for semiconductor manufacturing, as one third of the world’s helium supply traverses the Strait of Hormuz. Spot prices for this vital gas have doubled amid the conflict.

The defence industry, which initially thrived in anticipation of increased military expenditure, has experienced a retreat in stock values, attributed to a broader economic downturn. Despite this, analysts foresee continued momentum in the sector as European countries seek greater autonomy in their defence capabilities.