The outbreak of conflict involving Iran initially sparked widespread market fears of a repeat of the 1970s energy and inflation shock. However, current evidence suggests this warning is proving false.
From trade to food prices, the intensity of the current disruption is significantly weaker than the dual shock caused by the COVID-19 pandemic and the Russia-Ukraine war in 2022. Analysis indicates that measured by import price inflation in emerging markets, the impact from Iran is far lower than during the Ukraine crisis and even milder than the volatility triggered by the 2016 credit stimulus and commodity boom.
A market consensus is forming: as long as the Strait of Hormuz remains largely open, this shock will not escalate into a systemic crisis. While container shipping rates have risen recently, the drivers are seasonal demand and traders stocking up ahead of potential new tariffs, not supply disruption. Inflation expectations remain broadly anchored, and central bank policy frameworks are fundamentally different from the 1970s.
Trade Disruption is Limited: Hormuz is Not the Main Artery
Unlike the massive container shipping congestion of 2021-2022, the disturbance to non-oil trade from the Iran conflict has been relatively contained.
The earlier transport bottleneck was essentially a demand-side problem—a surge in consumer demand for durable goods post-pandemic created a supply-shock-like effect. This time, the blockade in the Strait of Hormuz has not substantially affected container trade. Operations at the region's largest transshipment hub, Dubai's Jebel Ali port, were quickly rerouted to other ports, and freight rates remained stable in the initial phase of the conflict.
The Strait of Hormuz has been likened to a "capillary" in the trade system rather than a vital "artery." This characterization fundamentally explains why the shock has not transmitted deeper into supply chains.
Food Prices Stay Stable, Fertilizer Supply Shows Resilience
Food inflation also shows no signs of spiraling out of control, a stark contrast to the Russia-Ukraine war.
The war in Ukraine directly impacted two of the world's largest grain exporters. In contrast, Gulf states are net food importers, so the direct impact on global food supply from this conflict is limited. While fertilizer supplies were briefly disrupted, sowing progress in major producing regions like Europe, North America, and Australia in the Southern Hemisphere was not significantly affected.
India, one of the world's largest importers of urea and fertilizer and highly dependent on the Gulf region, has seen largely normal supply conditions. Inventory management and flexibility in fertilizer distribution have helped major agricultural economies navigate the window of supply disruption smoothly. Fertilizer exports have resumed, though whether the "supply air pocket" caused by the Strait blockade will have a material impact on future agricultural seasons remains to be seen.
Central Bank Credibility is the Key Defense Against an Inflation Spiral
What separates the current situation from the 1970s is not just the intensity of the supply shock, but a fundamental change in the policy framework.
During the Ukraine crisis, even as price levels rose significantly, the wage-price spiral remained only moderate. Central banks raised interest rates rapidly and ultimately contained inflation without triggering a recession—the global economy achieved a soft landing in 2024. This outcome is attributed to the institutional capital built up over generations of central bankers since the 1970s through credible monetary policy that anchored inflation expectations.
It is also noted that future risks remain non-negligible. A potential El Niño weather event later this year poses a threat, and the situation in the Strait of Hormuz is far from stable. However, ultimately, whether an era descends into stagflation depends on the responses of policymakers, consumers, and businesses, not solely on the energy price shock itself. Based on current evidence, the Iran conflict has not yet constituted a turning point back towards the 1970s.
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