Middle East Tensions: The standoff with Iran lasted over 15 weeks before a preliminary peace agreement was reached between the US and Iran this week. However, the resulting humanitarian and economic costs escalated rapidly, with repercussions extending far beyond the region.
Amid mounting domestic and international pressure, US President Donald Trump stated on Monday that he and Vice President JD Vance had electronically signed a document with Iranian officials the previous day, formally ending the war. Reports indicate the conflict began on February 28, when the US and Israel launched attacks on Iran.
Even if oil supplies from the Middle East resume, economists and industry analysts suggest it may take some time for consumers to see price relief at fuel stations, supermarkets, and other retail outlets.
Tensions around the Strait of Hormuz disrupted not only the supply of crude oil and refined fuel but also impacted broader supply chains involving fertilizers, food products, and even footwear. Businesses anticipate that increased costs will persist for some time, signaling that consumers may continue to face higher prices in the near future.
The total cost of the war for the US is estimated at approximately $132 billion, though final figures are still being assessed as a 60-day negotiation process gets underway.
According to Moody’s Analytics, US taxpayers and consumers have borne a burden of at least $132 billion, reflecting the conflict’s broad economic impact. Mark Zandi, the firm’s chief economist, stated—as reported by The New York Times—that this figure encompasses military spending, rising energy and commodity prices, and interest rates.
According to Moody’s Analytics, American taxpayers and consumers have borne a burden of at least $132 billion, reflecting the broader economic impact of this confrontation. Mark Zandi, the company’s chief economist, stated that this figure encompasses military spending, rising energy and commodity prices, and interest rates, as reported by The New York Times.
A senior Pentagon official informed Congress last month that the cost to the military had risen to approximately $29 billion. That estimate did not include the cost of repairing damage inflicted by Iranian attacks on nearly a dozen U.S. bases in the region.
Costs associated with repairs and maintenance, as well as keeping carrier strike groups deployed at sea, must also be factored in. Linda Bilmes, a public finance expert and senior lecturer at the Harvard Kennedy School, told the NYT, “It costs a lot of money just to keep all those people and all that equipment deployed there.”
She further noted that the cost of replacing the vast quantities of weapons and ammunition used by the U.S. military is expected to far exceed the initial purchase price.
According to reports, Iran also caused significant damage to other U.S. assets in the region, including a valuable military radar aircraft parked on the tarmac in Saudi Arabia and parts of the U.S. embassy complex in Riyadh.
Energy Prices
According to Brown University’s ‘Iran War Energy Cost Tracker,’ Americans have spent approximately $60 billion more on gasoline and diesel due to rising fuel prices since the conflict began. This amounts to an additional cost of roughly $460 per household, and the total figure continues to rise.
According to AAA, a non-profit motor club association, the average price of gasoline was approximately $2.98 per gallon at the onset of the conflict involving the U.S., Israel, and Iran. Since then, fuel prices have seen repeated spikes and are currently hovering near $4 per gallon. Following the announcement of a peace agreement on Monday, international crude oil prices have fallen and are currently hovering around $80 per barrel. Previously, in March, prices had surged to nearly $120 per barrel.
The earlier spike in fuel prices impacted the entire economy, driving up transportation-related costs—including airline tickets and the movement of goods and manufactured products.
Flights won’t get cheaper immediately
Industry experts have long warned that passengers will not see an immediate drop in airfares even after the war ends. They note that airlines typically purchase fuel in advance, adjust their operations gradually, and set ticket prices largely based on demand.
According to an AP report, it often takes weeks or months for a decline in oil and jet fuel prices to be reflected in commercial flight fares.
“I don’t think we’ll see any reduction or drop in the cost of air travel anytime this summer,” said Columbia House.
According to the AP report, Gordon Ho, a professor at the University of Southern California’s business school, stated that fuel surcharges added by some airlines outside the U.S. are among the first areas where passengers might find relief.
Fertilizer and Food
According to an NYT report, the closure of the Strait of Hormuz has disrupted global trade, driving up the prices of various commodities. This includes sulfur, a crucial raw material used in the production of certain types of fertilizers.
Earlier this month, in a report by the Council on Foreign Relations, Maximo Torero Cullen—Chief Economist at the Food and Agriculture Organization—stated that disruptions in the strait would have consequences extending “far beyond agriculture, risking higher food prices and inflation, slower economic growth, and increased hunger worldwide.”
Farmers Grappling with Fertilizer Shortages
Reopening the Strait of Hormuz would be a positive development for farmers and global grain production, given that approximately 30% of the world’s fertilizer supply passed through this route before the conflict. Supply disruptions have driven up prices, and experts—as reported by the AP—note that it could take considerable time for shipment volumes to return to pre-war levels.
The impact of the current shortage could worsen in the future, even if conditions begin to improve.
Farmers across the globe are currently operating during the planting season without adequate fertilizer or are forced to pay exorbitant prices for the fertilizer and fuel essential for cultivating and transporting their crops.
The UN World Food Programme anticipates that this will have a “severe impact” on crop yields in the coming months—and, consequently, on food prices and availability.
Shipping industry hopes for recovery
Judah Levin, head of research at freight booking platform Freightos, said the closure of the Strait of Hormuz affected approximately 2% to 3% of the total number of container ships used in global shipping, but high oil prices and the blockage have had a more widespread impact on the shipping industry, according to an AP report.
(With inputs from agencies)