The war in the Middle East has now continued for more than 180 days. Although energy exports from the region have nearly come to a halt, there are still few signs of a serious crisis. Energy prices have risen, especially oil derivatives such as diesel, heating oil, and kerosene, but few indicators point to slower economic growth; in many places, we are even seeing an acceleration. This is notable because exports through the Strait of Hormuz have fallen by about 75%—from around 21 million barrels per day to around 5 million barrels per day now. According to the International Energy Agency (IEA), global oil supply stands at around 102 million barrels per day, so roughly one-fifth of global supply is affected.
This raises two questions: How can we explain the moderate reaction, and should we expect more serious consequences in the coming weeks or months if no near-term agreement between the warring parties appears likely?
To answer the first question, several factors matter. China was able to cut its purchases by around 4 million barrels per day because it had built large strategic oil reserves over many years. Many other countries are also drawing down inventories. In addition, the US has increased output to export more oil to Europe. Unlike China, however, many other countries have already reduced their reserves substantially, and we believe these reserves may last only a few more weeks. Refineries have cut demand by around 5 million barrels per day compared with last year. This reduction explains why prices for diesel and gasoline have risen more than crude oil prices so far. Consumers—and therefore voters—feel this most directly, so price inflation in this area is likely to feature prominently in the US midterm elections. Still, ship-to-ship transfers and alternative pipeline routes have helped cushion some of the supply disruptions.
Does this mean further price increases loom in the coming weeks or months? The current status quo is clearly not sustainable. Outside China, the scope to tap strategic reserves appears largely exhausted, and building alternative infrastructure for production, processing, and transportation takes time. Such infrastructure would also be a relatively easy military target should Tehran’s leadership seek escalation to secure better terms for an agreement. Such an escalation would be politically costly for President Trump. But the alternatives—effectively allowing Iran to control the Strait, lifting sanctions, or releasing frozen funds—would also carry political costs. The conflict could therefore last longer, and energy prices may continue to move markets.
The view into 2027 also matters. Although that may be hard to imagine given such hot temperatures this summer, the next winter will come. Gas storage levels for the cold season are also low. In Germany, gas storage levels currently stand at only 48%, versus 65% a year ago and 75% at the same point in 2022. These deficits cannot be closed quickly and raise the risk that higher energy costs remain relevant even after the conflict ends. Beyond energy, many other goods exports are affected by the blockade, including raw materials for agricultural fertilizers. The Ukraine war and sanctions against Russia had already weighed on supply and prices for nitrogen, phosphate, and potash fertilizers; the war in Iran is likely to push prices higher. Higher prices lead to less fertilizer use, especially in emerging markets, which should weigh on yields in the years ahead. The current El Niño year adds to the risk, as it is likely to reduce harvests in many regions.
The implications for investors are broad. They include macroeconomic developments such as inflation and growth risks—with scope for higher equity prices if conditions normalize, but also for a correction should energy prices rise again. In addition to investments in the energy sector and commodities, we believe energy infrastructure and the food value chain offer interesting opportunities.
The war in the Middle East will hopefully end soon, but the way food is produced, processed, and consumed is changing structurally. New technologies are emerging across the entire value chain—from agriculture to waste management. These include connected devices, autonomous tractors, plant-based meat alternatives, and indoor farms. They also include nitrogen-fixing grains that require less fertilizer, animal feed made from insects and algae, and lab-grown meat and fish.
Digitalization has shaped the sector for years, and AI is likely to accelerate this development further. Relevant themes include digital traceability, logistics and planning platforms that reduce food waste, food delivery apps, and personalized nutrition recommendations that can change consumption habits and raise awareness of health and environmental issues. These structural developments could also create longer-term opportunities for investors.
