Iran War Drives Up Global Energy, Construction and Food Prices

The Iran war is creating a ripple effect across global supply chains, pushing up costs for everything from building materials in New Zealand to butter exports from Ireland. As energy prices surge due to Middle East tensions, companies worldwide are warning that consumers will face higher prices on essential goods.

Fletcher Building, New Zealand's largest supplier of construction materials, is raising prices as the conflict drives up costs for transportation and production. The company has also warned that demand is beginning to soften, signaling broader economic concerns about how sustained price increases might dampen consumer spending and business investment in the construction sector.

The inflationary pressures are spreading rapidly across industries. In the United States, wholesale prices jumped 0.5% in March alone, with energy costs surging 8.5% from February, according to Labor Department data. Consumer prices rose 3.3% year-over-year last month—the largest increase since May 2024—as soaring gasoline prices rippled through the economy. This marks the biggest monthly gain in nearly four years when compared to the previous month.

The impact extends beyond fuel to critical supply chains. Diesel prices, which power farm equipment and transport trucks, have surged from $3.87 to $5.62 per gallon. Farmers warn these increased production and transportation costs will inevitably reach grocery store shelves. Airlines and food exporters face similar pressures; Ireland's Ornua, maker of Kerrygold butter, has flagged that higher costs from the Middle East conflict are showing up in supply chains and driving food inflation globally.

The International Energy Agency forecasts an unprecedented decline in oil demand this year—the first decrease since the pandemic—with demand expected to drop by an average of 80,000 barrels per day. However, this decline has not yet stabilized prices. The current quarter is expected to see a demand drop of 1.5 million barrels due to attacks on energy infrastructure and the shutdown of the Strait of Hormuz.

For American consumers, the effects are already visible. Higher costs are expected to persist at gas pumps, airports, and grocery stores. A Harvard study estimates the Iran war could ultimately cost American taxpayers $1 trillion when accounting for munitions, troops, and military damage. As these economic pressures mount, Federal Reserve officials face competing pressures: President Donald Trump has urged interest rate cuts, but some policymakers are inclined to raise rates instead to combat the inflation threat posed by elevated energy costs.