Strait of Hormuz Disruptions May Raise Food & Energy Costs, Warns UNCTAD

The UN Conference on Trade and Development (UNCTAD) said in a report on March 10 that the ongoing military escalation in the region due to the US-Israeli strikes on Iran and retaliation by Tehran has disrupted shipping flows through the Strait of Hormuz, one of the world’s most critical maritime chokepoints.

The narrow passage carries around a quarter of global seaborne oil trade and significant volumes of liquefied natural gas and fertilisers.

“The resulting ripple effects go far beyond the region, affecting energy markets, maritime transport and global supply chains,” the report said.

“Higher energy, fertiliser and transport costs – including freight rates, bunker fuel prices and insurance premiums – may increase food costs and intensify cost-of-living pressures, particularly for the most vulnerable,” it said.

The UNCTAD report stressed that disruptions in the Strait of Hormuz underscore the “vulnerability" of critical maritime chokepoints to geopolitical tensions and their potential to transmit shocks across supply chains and commodity markets.

It further noted that reducing risks to global trade and development, including environmental risks, requires de-escalation and safeguarding maritime transport, ports and seafarers, and other civilian infrastructure, while maintaining secure trade corridors in line with international law and freedom of navigation.

“Economic impacts, both globally and for the region, will depend on the duration, intensity and geographic scope of the tensions. Continued monitoring is essential to assess evolving risks and their potential impacts,” PTI reported citing UNCTAD.

The report noted that many developing countries already face high debt service burdens, limited fiscal space and constrained access to finance.

Strait’s Global Trade Risks

The ongoing war between US-Israel and Iran has made the Strait of Hormuz very challenging for oil tankers, stopping or slowing down many oil ships passing through the route. This has caused oil prices to rise and fluctuate because a lot of the world's oil moves through this narrow waterway. Iran's Revolutionary Guards have threatened to block the route completely saying that they will not allow any oil to be shipped to countries they consider enemies if the conflict continues.

In such a context, rising energy, transport and food costs could strain public finances and household budgets, potentially heightening economic and social pressures and complicating progress toward sustainable development, particularly in economies heavily dependent on imported energy, fertilisers and staple foods.

Strait’s Strategic Energy Role

According to UNCTAD data, about 20 million barrels of oil per day (mbpd) - roughly 25% of global seaborne oil trade - passed through the Strait of Hormuz in 2024. Of them, crude oil and condensate accounted for 14mn bpd and petroleum products for 6 million bpd.

Data from a week prior to the latest West Asia escalation showed that 38% of global seaborne crude oil trade, 29% of liquefied petroleum gas trade and 19% each of liquefied natural gas and refined oil products passed through the Strait.

Since February 28, when the first strikes against Iran were launched by the US and Israel, ship traffic through the Strait of Hormuz has dropped by 97%.

UNCTAD warned that disruptions in the Strait compromise energy supplies, particularly to Asia.

In 2024, 84% of the 14.3 million barrels of crude oil per day that were transported through the Strait of Hormuz were headed for Asia, while only 16% was destined towards Europe and other regions.

Similarly, 83% of the 10.4 billion cubic feet of liquefied natural gas shipped daily through the Strait was bound for Asia. Around one-third of the global seaborne fertiliser trade, about 16 million tonnes annually, also passes through the waterway, UNCTAD said.

 (With inputs from PTI.)