Beyond oil and gas, the Iran war is generating supply-side inflation pressure through two additional commodity channels: fertilizer, where prices are expected to surge approximately 38% in 2026, and aluminum, where energy-intensive smelting costs are rising sharply in response to elevated electricity and fuel prices globally.

Key Highlights

  • Fertilizer prices up 38% in 2026: The World Bank projects fertilizer prices will surge approximately 38% in 2026 due to energy-intensive production processes, natural gas feedstock cost increases, and Middle East supply chain disruption.
  • Food security risks escalating in developing nations: Rising fertilizer costs are compounding food security pressures already heightened by the pandemic and the Russia-Ukraine conflict, with the World Bank warning that the number of people facing food insecurity will increase further.
  • Aluminum under pressure from energy costs: Aluminum smelting is one of the most energy-intensive industrial processes, and rising electricity and fuel costs in Europe and Asia are increasing production costs and reducing smelter output in high-cost regions.
  • PPI intermediate goods cascade confirmed: May PPI data showed stage-1 intermediate demand rising 3.2% month-on-month, the largest monthly advance since the series began, with aluminum base scrap and industrial chemicals among the named drivers alongside energy.

The inflationary impact of the Iran war is moving in waves through the global economy. The first and most visible wave is energy, with crude oil, gasoline, diesel, and jet fuel prices rising sharply as the Strait of Hormuz closure disrupts one-fifth of the world's oil supply. But a second wave is now becoming apparent in agricultural and industrial commodity markets, where the energy shock is feeding through to production costs with a lag.

Fertilizer is the clearest example of this secondary transmission. Natural gas is the primary feedstock for nitrogen fertilizers, the most widely used type globally. As natural gas prices have risen in response to the Strait disruption, the cost of producing fertilizer has increased sharply. The World Bank projects a 38% price surge in 2026, expected to raise agricultural input costs and food prices in the months ahead.

For developing economies that are net food importers, the combination of higher fertilizer costs and elevated fuel costs for agricultural machinery and food transport represents a compounded squeeze on food security. The World Bank has explicitly flagged food insecurity as a growing risk in its June 2026 Global Economic Prospects report, noting that the Iran war adds a new layer of stress on top of existing pressures from the pandemic and the Russia-Ukraine conflict.

Aluminum faces a parallel dynamic. Smelting alumina requires enormous quantities of electricity, making energy costs 30% to 40% of total production costs. As power prices have risen, aluminum smelter margins have compressed in Europe and Asia, with some producers curtailing operations. May PPI data confirmed aluminum base scrap as a named contributor to the record monthly increase in stage-1 intermediate demand prices.