Iran war triggers global shockwaves across energy, food and finance systems, analysts warn

The US-Israel war on Iran is exposing deep structural vulnerabilities in the global economy, sending shockwaves through energy markets, driving up fertiliser costs and threatening food security in ways that could linger well beyond the immediate crisis, analysts at the World Resources Institute (WRI) have warned. 

At a briefing this week, ahead of the First Transitioning Away from Fossil Fuels (Taff) conference in Santa Marta, Columbia, which got underway on Friday, WRC experts described a cascading crisis unfolding across interconnected systems. 

What began with disruption in oil and gas flows is quickly transmitting into higher food prices, fiscal strain and rising instability, particularly in vulnerable regions.

“There’s a fragility of our systems – energy, food and many others,” said WRI president and chief executive Ani Dasgupta. “Virtually every economy in the world is impacted … The world will grow slower because of this.”

That fragility is being laid bare most clearly in global energy markets. Roughly 20% of the world’s oil and liquefied natural gas typically passes through the Strait of Hormuz, a chokepoint now under strain. 

The result is an immediate shock, with countries heavily dependent on imported fossil fuels scrambling to secure supply. Craig Hanson, the WRI’s managing director of programmes, said the crisis is revealing a stark divide between countries. 

“Many countries that are relying on fossil fuels that transit this strait are now in a precarious energy position,” he said. “While many of these nations are reeling… some others are actually in a better position to withstand this current crisis.”

The difference, he argued, lies in prior investment in renewable energy, not just for environmental reasons, but for economic and security ones. 

“What enables these energy systems to meet this moment of crisis is not their environmental credentials… it’s their economic and security features – security of domestic supply and stability of costs.”

That divide is already visible. China, after years of investment in electric vehicles and renewable power, has reduced its exposure to imported fossil fuels. 

In Pakistan, a surge in solar capacity has helped cushion the impact of disrupted gas supplies. In Europe, countries such as France and Spain – with less reliance on gas for electricity – are seeing more stable prices than their peers.

For Hanson, the lesson is becoming unavoidable. “Renewable energy… can actually fuel national energy security,” he said, a reframing that is gaining traction as governments confront repeated fossil fuel shocks.

The same disruption affecting oil and gas is also hitting global food systems through a less visible but equally critical channel: fertiliser.

Nitrogen fertilisers depend heavily on natural gas and much of their supply chain runs through the Gulf. Since the start of the conflict, global urea prices have surged, in some cases dramatically, while supply constraints and export restrictions are tightening markets further.

“The Iran crisis, urea, fertiliser, food price causality is well in full place,” Hanson warned.

The consequences will take time to materialise. Reduced fertiliser use now is likely to translate into lower crop yields in the next planting cycle, raising the risk of food shortages and further price spikes.

For Africa, the implications are particularly severe. Melanie Robinson, the WRI’s global climate economics and finance programme director, who is based in Nairobi, said the continent is facing a compounding set of shocks across what she described as multiple “F’s”.

“Fuel and food — on all of those, Africa is more vulnerable than most other parts of the world,” she said. 

“And that’s partly because most African countries are fuel importers and they also have fewer days of reserve.They have an average of about 30 days of reserve as against normally 90. So, they are certainly vulnerable and prices have gone up about 15% to 40%.” 

On fertiliser, she noted that while Africa is generally less dependent on it than other regions, it still imports about 80% of its fertiliser, much of it from the Gulf, making it exposed to disruptions. “This is the planting season in much of Africa and so that will feed through into food insecurity.

“And that’s at a time when prices are also going up and the continent’s also been suffering from the impacts of the Russia-Ukraine conflict and climate effects so … we are seeing serious impacts on the continent.”

Another “F”, she said, is fiscal. Robinson pointed out that many African countries are already dealing with imported inflation at a time when they have limited fiscal space because of debt. On top of that, currencies are weakening as investors move into safer assets like the US dollar, which increases costs further.

Africa, she explained, receives significant remittance flows – including up to $40 million monthly from the Gulf – and warned that if Gulf economies come under strain, those flows could fall, adding further pressure on households and governments already struggling with higher costs and reduced fiscal flexibility.

In Nairobi, there are demonstrations about fuel prices and the cost of living in general. “And we do see, particularly on this continent, that increases in fuel and food prices can be a real trigger for unrest. So … stability will also be a feature.

“In terms of the countries that are worst affected, clearly those that are net fuel importers, but also those with weak fiscal buffers. Ethiopia is a bit of a standout example. They get most of their fuel from the United Arab Emirates, Saudi and Kuwait.

“But other countries like Kenya, where I am, Uganda, even South Africa, Egypt and Tunisia are all going to struggle. Even Nigeria, which is the biggest oil producer on the continent, is also import dependent. And then obviously the most fragile states, which already find it very hard to respond.”

Building resilience to this could include targeted support to the poorest families. “It might be about social protection rather than putting on fossil fuel subsidies, which are harder to remove. And then medium and longer-term, it is about renewables deployment. 

“It’s about different agriculture techniques … It’s about actually having manufacturing in Africa and opening up trade for manufacturers across the continent and building in that understanding of some of these shocks and some of these sources of instability into long-term economic planning and fiscal frameworks.”

These questions are expected to take centre stage at the Taff conference in Santa Marta, where more than 50 countries will meet to accelerate efforts to move away from fossil fuels.

Nicholas Robins, the WRI’s senior director for finance and the private sector, who is helping lead discussions with central banks at Taff, said the crisis is shifting how policymakers view fossil fuels. “Fossil fuels… are systemic sources of economic and financial instability,” he said.

That shift is drawing in finance ministries and central banks, increasingly concerned about what has been termed “fossil inflation” – the role of fuel shocks in driving broader price instability. The pattern is familiar, from the oil crises of the 1970s to the Russia invasion of Ukraine, but Robins argued this moment may be different.

“We have the technologies and I think we’re going to have the determination of countries to respond,” he said.

At Taff, countries are expected to outline national roadmaps for transitioning away from fossil fuels, alongside coordinated efforts to scale up clean energy and support developing economies through the shift.