The reopening of the Strait of Hormuz would bring relief to global trade and energy markets. But for many vulnerable economies, the shock will not end when ships start moving again.

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After more than 100 days of disruption, ship transits through one of the world’s main energy corridors may gradually resume. Energy markets are likely to react faster than food, transport and public finance systems.

The fourth edition of UNCTAD’s monitoring series looks at the economic aftershocks of more than 100 days of disruption, focusing on how higher energy, food and transport costs continue to affect vulnerable economies.

But transport and food systems usually move more slowly than oil markets. Freight contracts take time to reset. Supply chains need time to adjust. Higher fuel, gas and fertilizer costs can continue to feed into farm production, transport bills and household budgets after the initial shock has eased.

That delay matters most where food, fuel and transport take up a large share of income. For poorer households, even a short period of sharply higher essential costs can have consequences that last beyond the market disruption.

Analysis by UN Trade and Development (UNCTAD) shows that 61 vulnerable economies face dual exposure to oil and cereal import shocks. They include 35 least developed countries and 26 small island developing States, with seven countries belonging to both groups.

Why exposure remains high

The pressure is sharpest for economies that rely heavily on imported fuel. In Cabo Verde, net imports of oil and petroleum products averaged 24.6% of GDP in recent years, meaning higher fuel costs can quickly spill into electricity, transport, food prices and public finances.

Food dependence adds another channel of risk. In Yemen, net imports of cereals and cereal products averaged 10.8% of GDP, leaving households highly exposed when grain, fuel and transport costs rise together. For countries already facing debt pressure, currency risks and tight public finances, this leaves little room to absorb higher import bills.

Higher energy costs can also affect food before it reaches the market. They raise the price of fertilizers, farm inputs and transport. Domestic food prices can therefore keep rising even after international oil and grain prices start to fall.

The consequences are not only macroeconomic. UNCTAD analysis also points to the human cost: a real food price increase of 5% is associated with a higher risk of child wasting, especially among poor children and children in rural landless households.

Recovery needs more than reopening

Restoring trade through the Strait is a necessary step. But it will not undo the pressure from higher import bills, delayed shipments and more expensive food and energy.

Many vulnerable economies are facing the aftershock with limited fiscal room. Debt servicing, exchange rate risks, weaker remittances and declining aid can all reduce their ability to cushion households and firms.

The policy task is therefore broader than reopening a route. Vulnerable economies need support to manage higher import bills, protect households from food and fuel price shocks, and invest in systems that reduce exposure before the next disruption hits household budgets.

Source: UNCTAD