Consumers could be on the losing end of US-Iran war costs

KUCHING (March 13): Following the escalation in Iran, the key issue for the consumer sector is the transmission of higher energy prices into raw materials, fertiliser, freight and packaging costs.

The most relevant recent precedent remains the Russia-Ukraine war, when energy markets repriced first and broader consumer input costs followed.

The research team with MBSB Investment Bank Bhd (MBSB Research) noted that oil and gas sit across the cost stack through fuel used in cultivation, processing and transportation, through petrochemical feedstocks used in packaging, and through natural gas as a critical input in fertiliser production.

The Strait of Hormuz is therefore increasingly relevant as it is a major artery for fertiliser trade and related inputs into the global agricultural chain.

“Fertiliser is likely to be one of the more important effects of the current conflict, with more than one-third of globally traded fertiliser passing through the Strait of Hormuz,” it said yesterday.

“As such, any disruption to Gulf trade routes or sustained rise in energy prices will lift fertiliser costs and tighten availability.”

The transmission into food inflation will typically be delayed rather than immediate, MBSB Research said, as higher fertiliser prices increase planting costs upfront, while shortages during the application window can reduce yields later in the crop cycle for corn, soybeans, wheat and rice, tightening supply.

The World Bank previously noted that fertiliser prices surged to historically elevated levels during the 2021-2022 energy shock and were likely to remain higher for longer when gas and coal prices stayed elevated.

Meanwhile, the Food and Agriculture Organisation (FAO) has similarly emphasised the link between fertiliser affordability, crop yields and downstream food inflation.

“Across the basket, the clearest and fastest pass-through was visible in packaging and energy-linked commodities, while crop-specific soft commodities were additionally influenced by weather and supply fundamentals,” it said.

“Higher oil prices raise distribution and freight costs, increase packaging costs through petrochemical inputs, push up fertiliser-linked agricultural costs, and weaken household purchasing power through broader inflation.”

The first-round pressure is usually most visible in packaging-intensive and freight-intensive segments, including beverages, household products and modern retail, it said.

The second-round effect is felt across food manufacturers, restaurant operators and other consumer staples through grains, sugar, edible oils and feed-related protein costs. Margin risk rises most sharply for companies with limited pricing power, high packaging intensity, and heavier exposure to imported raw materials.

“In a prolonged conflict scenario, the sector would likely face a broader cost reset rather than a narrow fuel-price shock, with the pressure building progressively as inventory rolls over and procurement contracts are renewed,” MBSB Research said.

“If the conflict is sustained over the coming months, the implications for the consumer sector could turn increasingly negative for discretionary players, who would likely be more vulnerable given their limited ability to pass through higher input costs while simultaneously facing weaker demand as staples producers adjust prices, thereby eroding household purchasing power.”