UN Agency Warns Disruption in Strait of Hormuz Could Have Long-Term Impact on Economy
JAKARTA - The United Nations trade and development agency warned on Tuesday that although the reopening of the Strait of Hormuz would bring immediate relief to the energy market, vulnerable economies remained at risk from prolonged food and fuel price hikes.
Food and transport systems are likely to take longer than the energy market to recover, as disrupted supply chains take longer to return to normal after more than 100 days of severe disruption to shipments through the strategic waterway, the United Nations Conference on Trade and Development (UNCTAD) said in a new report, Al Arabiya reported from Reuters (30/6).
The strait, which normally carries about a fifth of global oil and gas supplies, was effectively paralyzed during the conflict sparked by a US-Israeli joint attack on Iran in late February.
Although Brent crude prices have fallen sharply back to around $73 a barrel, approaching pre-conflict levels, after the signing of the US-Iranian Memorandum of Understanding, UNCTAD said higher fuel, gas and fertilizer costs could continue to impact agricultural production, transport costs and household budgets.
Countries with vulnerable economies remain highly exposed to oil and fertilizer price shocks, while continued high food prices could put further pressure on poor households.
UNCTAD said a 5 percent rise in food prices could significantly increase the risk of child malnutrition.
Furthermore, the body identified 61 countries with vulnerable economies exposed to oil and cereal import shocks related to disruptions in the strait.
Among them is Cape Verde, which is heavily dependent on imported fuel and has experienced increases in the cost of electricity, transport, and food that could continue even after the energy market stabilizes.
Meanwhile, countries that import staple food such as Yemen remain very vulnerable because their fragile economies are not ready to absorb rising grain prices and transportation costs.
UNCTAD also called for international support to help the most vulnerable countries recover from the recent shocks.