Summary of how the Middle East war will hit food and drink:
- Hormuz disruption threatens global food supply routes
- IMF warns growth downgrades and rising inflation
- Energy shock set to drive food price rises
- Consumers brace for recession‑style spending cuts
- Food manufacturers face higher costs and volatility
The war in the Middle East has rapidly evolved into a global economic crisis, with the growing risk of recession already rippling through the food, energy and consumer markets worldwide.
The Strait of Hormuz remains an area of contention and the US’s blockade of Iranian ports leaves the world in one of its most precarious economic situations in decades. And few countries immune from the fallout.
The result? Food and drink manufacturers and consumers are preparing for higher prices and possible supply disruptions.
But the situation – though very serious this time – is not all too unfamiliar to the global food and drink industry.
So, what lessons are there to be learnt from the past? How is the sector adapting? And what might come next?
With both the 2008 financial crisis and the recent cost‑of‑living crisis. consumers have been forced to cut back on spending. But it might get worse.
The International Monetary Fund (IMF) and World Bank have both signalled imminent downgrades to global growth forecasts while raising inflation outlooks, warning that developing economies will suffer the most.
The IMF’s latest World Economic Outlook says the war in the Middle East has halted positive momentum in the global economy. Its Chief Economist Pierre-Olivier Gourinchas believes the shock of the war and its ultimate magnitude will depend on the conflict’s duration and scale.
“On a severe scenario where energy supply dislocations extend into next year, inflation expectations become markedly less anchored, and financial conditions tighten sharply, global growth would decline to 2% this year and next, while inflation would exceed 6%. Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated,” he says.
The Organisation for Economic Co‑operation and Development (OECD) highlights the conflict is already testing the resilience of the global economy, warning that the energy supply shock will “significantly weigh on global growth.”
Oxford Economics has gone further, modelling for a “Prolonged Iran War” scenario in which the Strait of Hormuz remains effectively closed for six months.
Under this scenario, nearly 20% of global oil supply would be lost. Global inflation would hit 7.7%, with the severity of this disruption tipping the world into “outright contraction”.
Food and drink in a recession environment
Energy shortages and rationing would follow with advanced economies, including the US, sliding into recession, while China’s growth would slump to 3.4%. Gulf states would be hit hardest, with GDP falling by more than 8% in 2026.
Oxford Economics warns: “The last times the global economy contracted were during the pandemic and the global financial crisis. This would be the worst synchronised downturn in 40 years outside those two events.”
And of course, this all creates widespread implications for food and drink.
The findings, of a new United Nations report ‘Military escalation in the Middle East: Reversals in global development, policy response options’ warns that the conflict could push as many as 32.5 million people into poverty, triggered by a triple shock of rising energy affordability, food price increases and GDP contraction.
Meanwhile, The Food and Agriculture Organization of the United Nations (FAO) has issued a stark warning that ships carrying critical agricultural inputs must start moving through the Strait of Hormuz as soon as possible to ward off the risks of a dangerous spike in food price inflation later this year that could trigger a cascade of effects similar to the aftermath of the COVID-19 pandemic crisis.
“The clock is ticking,” says FAO Chief Economist Maximo Torero.
In the UK, the Food and Drink Federation (FDF), which represents the UK’s 12,000 food and drink manufacturers, has already revised its food inflation forecast expecting it to reach 9% by the end of the year, up from a previous estimate of 3%.
While in the US, inflation already accelerated last month to its highest rate (3.3%) in nearly two years. This made it the biggest monthly change since 2022, during the energy shock following the Russian invasion of Ukraine.
And to top it off, consumer confidence is already cracking. Global consumer confidence fell sharply in early March, according to analysts Morning Consult.
In Australia, a Westpac-Melbourne Institute survey found that sentiment plunged 12.5% in April as fuel prices spiked. In the US, the University of Michigan’s latest consumer survey revealed confidence fell to a record low, down by 11%, with fears over rising energy prices weighing heavily on households.
While in the UK, GfK’s long‑running Consumer Confidence Index slipped two points in March, with shoppers bracing for further price rises.
Previous economic challenges saw consumers tighten their discretionary spend and focus on prioritising essential goods. With the war continuing, consumers are already starting to feel the impact. And that’s on the back of an unabating cost-of-living crisis.
According to Lumina Intelligence, consumer behaviour could mirror patterns seen during the 2008 financial crisis and the more recent cost‑of‑living crisis.
Head of Insight, Andy Crossan says the one thing that is a certainty is prices will rise in some capacity.
Food and drink price hikes already in play
“We’re already seeing it, obviously, with fuel, and if transportation costs are going up for everybody, then that eventually means that products on shelves or in restaurants or cafes will feel the effect as well. The result for the consumer is that, unfortunately, we’ll probably feel the squeeze a little bit more in terms of our wallets and purses,” he says.
While some households will weather the storm, others particularly families, will feel the squeeze more.
“There’s the question of choices then, whether that be trading down potentially moving from brands to private label. That was certainly a trend that we saw in the last cost of living crisis,” Crossan advises.
“Consumers have tended to be more cautious and make more considered approaches potentially trading down from premium private label to standard or standard private label to economy. The one thing that I would expect to see more of is more planning for shoppers.”
Crossan says it is “hard to tell” if consumers ever properly moved out of the cost-of-living behaviours but he would expect there to be more changes in purchasing behaviour if double-digit food inflation returns.
Adapting to this changing economic environment would also see a shift with consumers sticking to shopping lists and making fewer impulse purchases. Retailers would likely also change their approach and increase their use of loyalty cards, as well as focusing on more everyday lower prices, he believes.
There is also a risk that people will return to behaviours that took place during the cost-of-living crisis, such as skipping meals, especially breakfast, to cut the price of their food shop.
At the same time, the so‑called “lipstick effect” is likely to continue with consumers still seeking small, affordable treats in food and drink to cope with mounting pressure on household budgets. They will also likely prioritise out-of-home visits as a treat.
With flights and travel continuing to be impacted by the current war there may be opportunities for hospitality, especially as it is heading into the all-important busy summer season in the UK.
“Consumers will tend to plan more, and the hospitality trade will hopefully be a bit more resilient because people see it as a bit more of a treat,” he says.
Inevitably much depends on how long the war continues and how resilient economies are to these major shocks.
Until the Strait of Hormuz is reopened and trading returns to normal, the situation is only set to hit on consumer pockets globally while the chances of more people in food poverty looks set to rise.
