Vulnerable economies are still impacted by Hormuz, says UN agency

The United Nations trade and development agency warned on Tuesday that while the reopening of the Strait of Hormuz will bring immediate relief to energy markets, vulnerable economies remain exposed to the risk of prolonged increases in food and fuel costs.

Food and transport systems will likely take longer to recover than energy markets, as disrupted supply chains need more time to re-establish themselves after more than 100 days of severe disruptions to shipping through this strategic waterway, UNCTAD (United Nations Conference on Trade and Development) said in a new report.

The strait, which normally carries about a fifth of global oil and gas supplies, was virtually paralyzed during the conflict sparked by joint US and Israeli attacks on Iran in late February.

Although Brent crude oil fell sharply to around US$73 per barrel, close to pre-conflict levels, following the interim deal between the US and Iran, UNCTAD said higher fuel, gas and fertilizer costs could continue to be reflected in agricultural production, transport costs and household budgets.

Vulnerable economies remain particularly exposed to oil and fertilizer price shocks, while persistently high food prices could put further pressure on the poorest households.

UNCTAD has stated that a 5% increase in food prices can significantly increase the risk of childhood wasting.

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The agency identified 61 vulnerable economies exposed to shocks to oil and cereal imports related to the disruption in the Strait of Hormuz.

Among them is Cape Verde, which relies heavily on imported fuel and has faced rising electricity, transport and food costs, which could continue even after energy markets stabilize.

Basic food importing countries such as Yemen also remain highly vulnerable as their fragile economies are not prepared to absorb higher grain prices and transport costs.

UNCTAD has called for international support to help the most exposed countries recover from recent shocks.

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Source: CNN