Energy plays a vital role in our food supply chain, meaning that conflicts like the recent war can affect what we pay for groceries. Dr. Ricky Volpe, an agricultural economist at Cal Poly, notes, “When energy prices go up, food prices often follow.” He recalls times when oil prices surpassed $100 a barrel, leading to noticeable increases in food costs.
The ongoing war in Iran is adding stress to an already fragile U.S. economy. Goldman Sachs recently increased the likelihood of a recession within a year to 25%, up five points. Many Americans are feeling the pinch as food prices continue to rise, with current prices nearly 24% higher than before the pandemic. Consumer confidence remains low, hovering near historic lows, according to a recent report.
The longer the conflict drags on, the more it could affect grocery prices. Experts like Dr. David Ortega from Michigan State University suggest that if the war ends soon, we might not see immediate price hikes. “If it lasts a few weeks, there won’t be much change,” he explains. “But if it goes on for months, that’s a different scenario.”
There’s uncertainty about how long the conflict will continue. Though former President Trump expressed hope for a quick resolution, with conflicting statements about the war’s timeline, Iran’s readiness for a prolonged struggle complicates matters.
It takes time for the impacts of such shocks to appear in food prices. Ortega highlights a delay between the onset of the conflict and rising prices in stores, possibly lasting up to a year. Food production is energy-intensive, with energy needed at every step—from growing crops to transporting food to stores. Volpe emphasizes, “Energy costs accumulate at every stage. It complicates the entire supply chain.”
Shipping, a key part of this supply chain, is heavily influenced by fuel prices, especially diesel. FedEx, for example, adds a fuel surcharge of over 24% when diesel hits $4.54 a gallon, and prices were above $4.80 recently.
A blog post from the Federal Reserve Bank of St. Louis outlines the strong connection between oil prices and food costs. While correlation doesn’t imply causation, it shows that significant oil price changes often coincide with shifts in food pricing and inflation levels.
The war also impacts fertilizer prices. About one-third of global fertilizer travels through the Strait of Hormuz, and since the war began, the cost of urea—key for crops—has surged by 35%. This is problematic for farmers who are currently planting crops for the season, especially corn, which is crucial in the U.S. economy.
Volpe states, “If fertilizer prices rise, corn prices will likely follow, impacting the entire food supply chain.” This chain reaction can hit consumers hard, making it essential to keep an eye on these developments as the situation unfolds.
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Grocery,Inflation,Iran,Oil
