Strait Of Hormuz: How The Closure Impacts Gas, Food Prices And Mortgages

Inflation is predicted to rise to 3.5-four percent by mid-year. Food prices are expected to rise within 60 days. Mortgage rates rose from 5.98 percent before the war to 6.11 percent last week. Gas prices have risen 71 cents per gallon since the attack on Iran began.

Even if the United States ceased its attacks on Iran today, the war on your wallet is just beginning, and there is no end in sight. That is because Iran controls the Strait of Hormuz, choking off 20 percent of the world's oil supply, according to a March 12 report by the International Energy Agency (IEA).

In addition, 33 percent of fertilizer exports are also stranded. The combined effect of Iran's stranglehold on these resources is expected to hike food prices within 60 days and boost inflation to 3.5-four percent by Summer, RSM US told SavingAdvice Friday, March 13.

Peter Ramer, Consumer Products Senior Analyst for RSM US, a global audit and consulting firm, told SavingAdvice on Friday that businesses should expect their prices to rise within 60 days. For consumers, the timeline may be much shorter. How much shorter?

“So, it does depend on how quickly businesses increase prices,” Ramer said.“If they start to make adjustments early or if they wait until they exhaust some of their inventory and are buying products at higher costs before they're moving those prices up.”

In a March 11 blog, Ramer advised business clients to raise prices sooner rather than later.

“With cost pressures expected to intensify over the next 60 days,” Ramer wrote,“the window to act is narrow for many consumer businesses.”

“We're not looking to take advantage of a customer or anything like that,” said Ramer,“but I do think it's important to recognize these costs have increased, and in order for businesses to protect their margins, they just need to block it.”

Even if the war ended today, according to Ramer,“There's still some inflationary impacts that would happen over the next 60 days.”

Regarding the impact of closing the Strait of Hormuz, Ramer wrote:

“This narrow waterway, which connects the Persian Gulf to global shipping lanes, carries roughly 20% of the world's traded oil along with a significant share of global fertilizer exports. With shipping in the strait effectively closed, the impact is rippling outward, driving up energy prices, potentially raising food input costs, and forcing shipping routes onto longer, more expensive paths.”

When the cost of producing crops increases, farmers and processors pass those expenses through the supply chain, directly inflating the final price consumers pay at checkout.

Oil costs will raise the price of everything that must be transported. However, rising fuel and fertilizer costs are dealing a double blow to farmers and food production.

When the cost of producing crops increases, farmers and processors pass those expenses through the supply chain, directly inflating the final price consumers pay at the checkout counter.

Higher energy and fertilizer costs will“reignite global food inflation concerns” due to increased milling, transportation, and refrigeration costs, according to Joe Glauber, senior research fellow at the International Food Policy Research Institute.

“Certainly, higher natural gas prices, potentially higher electricity prices, those sorts of things would have inflationary impacts on food prices,” Glauber told SavingAdvice on Friday, March 13.

“There is a concern obviously on the Ag side, more from the blockage of fertilizer coming out of the Gulf,” said Glauber.“We have already seen anhydrous prices and urea prices trading about 30 percent higher,”

Countries surrounding the Persian Gulf are major exporters of urea, anhydrous ammonia, and phosphate used to make nitrogen fertilizer.

The timing of the reduction in oil and fertilizer supplies could not be worse for farmers and, by extension, grocery shoppers. It comes as planting season begins.

Zippy Duval, president of the American Farm Bureau Federation, sounded the alarm for farmers and consumers in a March 9th letter to President Trum.

“This is especially concerning when, just as America's farmers begin to put seeds in the ground for spring planting,” wrote Duval,“the prices for key inputs such as fertilizers and fuel increased rapidly following the closure of the Strait of Hormuz.”

Those rising costs may result in a weakened harvest.

“The concern would be that a lot of producers decide to apply less fertilizer because of the high costs,” said Glauber.“You have potentially some impact on production, but at least for the time being, I don't see that, but we'll have to see how long this goes.”

Duval characterized the situation as a risk for national security.

“Not only is this a threat to our food security – and by extension our national security – such a production shock could contribute to inflationary pressures across the U.S. economy,” declared Duval.

The attack on Iran was also bad timing for U.S. gas prices. It started just as prices were rising to adjust for seasonal demand. That seasonal increase usually starts around Spring Break and continues into Summer.

AAA, in a February 26 report, put the average price for a gallon of gas at $2.98. That was up five cents from the week before. However, when the bombing started two days later, the price of gas began to rise at a quicker pace.

The average price of a gallon of gas at the time of this writing was $3.69, according to AAA. That is an increase of 71 cents per gallon.

Mortgage rates rose to their highest level in over a month last week to 6.11 percent, according to Hannah Jones, senior economic research analyst at Realtor. In an article published Thursday, March 12, Jones attributed the rate hike to“volatility caused by geopolitical uncertainty.”

Uncertainty over the war countered“soft economic data,” driving yields on the 10-year Treasury Note higher, according to Jones. Currently, the 10-year Treasury yield is 4.27 -4.28 percent, according to the Federal Reserve Bank of St. Louis.

The 10-year Treasury yield dictates interest rates on longer-term investments, such as corporate bonds and mortgages. So, when the 10-year Treasury yield rises or falls, mortgages invariably follow suit.

“The current sense of unease rippling through the housing market feels strikingly familiar,” noted Jones,“echoing the tariff-driven volatility that upended financial markets this time last year.”

Uncertainty, according to Jones, has been the dominant factor holding the housing market back.

“The season began with a clear window of opportunity: Mortgage rates reached 3.5-year lows and February pending sales climbed 2.4% year over year, signaling a genuine appetite for homeownership,” writes Jones.“However, the sudden injection of geopolitical friction threatens to curb that enthusiasm. For the market to sustain its 'pep,' buyers require more than just favorable borrowing costs; they need the psychological green light provided by a stable economic outlook.”

Iran's control of the Strait of Hormuz has more to do with geography than military might. The strait forms an upside-down U around the Musandam Peninsula shared by the United Arab Emirates and Oman. The top of the U-shaped coastline belongs to Iran. Indeed, the entire north shore of the Persian Gulf is Iranian territory.

The strait is narrow, about 30 miles across at the apex, and only deep enough in the channel to accommodate two shipping lanes for large cargo ships. That makes those ships vulnerable to attack by bombs, missiles, explosive-laden boats, and mines.

At least 22 vessels have been attacked in the strait in the last two weeks, according to Reuters. Turkish news channel TRT World reports 15 oil tanks have been struck.

Some military experts think poor planning by the Trump Administration created the current situation. Among them is Phillips O'Brien, senior associate at the Center for Strategic and International Studies. He is also chair of strategic studies and head of the School of International Relations at the University of St Andrews in Scotland. He was interviewed on Friday by Nobel Prize laureate Paul Krugman.

“They never thought through the second and third-order effects,” said O'Brien of the Trump administration's lack of planning,“they were nowhere down, wondering what would happen if the Strait of Hormuz was cut and they couldn't get anything out of the Gulf. And I think they're just making it up now as they go along.”

Do you believe the U.S. is prepared for the economic fallout of this conflict, or are we only seeing the beginning? Share your predictions in the comments below.

MENAFN16032026008491017816ID1110867922