New Victims of the Iran War: From Bollywood Films to Italian Wine

The shockwaves from the conflict involving the United States (US), Israel, and Iran have immediately struck the global economy.

The surge in energy prices since the attack on Tehran on 28 February has quickly pressured production costs, disrupted consumption, and altered the course of central bank policies in a short time.

Prices of oil, gas, and fertiliser have risen simultaneously, forcing businesses and households to adjust their spending.

Energy and raw material commodity prices have skyrocketed within days. This change is quickly felt at the operational level. Factories face rising input costs, farmers see production expenses balloon, while the logistics sector bears the burden of more expensive fuel. This pressure flows into final goods prices and opens the door to inflation rises in various countries.

However, what has not often been highlighted is its widespread impact on sectors previously unrelated to energy.

In the land of a million gods, India’s film industry has postponed releases due to disruptions in the Middle East market. The film “Toxic: A Fairy Tale for Grown-ups” has shifted its screening schedule from March to June to preserve audience potential in the Gulf region. The Eid al-Fitr holidays from 19-22 March have passed without major films, a situation last seen in 2020.

In southern Italy, farmers in Calabria are facing a 60% surge in diesel prices. Fertiliser and pesticide costs have risen in the same period. Cost pressures emerge as global wine demand weakens. Producers choose to hold selling prices due to the risk of declining demand.

Energy disruptions also spread to daily activities. In Pakistan, cricket league spectators are asked to watch matches from home to save fuel. In the UK, the hospitality industry is again facing electricity cost surges reminiscent of the energy crisis a few years ago.

Energy price pressures are starting to be felt in households. In the United States, rising petrol prices diminish the positive impact of tax refunds. Economists estimate that a 20% fuel price increase could add about $6 billion in spending in one month. Consumption space is thus narrowing.

This situation is prompting central banks to change their stance. The Bank of England has stated its readiness to respond to inflation surges. The European Central Bank is expected to raise interest rates several times this year. In the United States, the Federal Reserve is holding back expectations of policy easing as price pressures have not subsided.

The greatest risk lies in the global energy distribution route. The Strait of Hormuz is a crucial point because most of the world’s oil trade passes through that area.

Bloomberg Economics models estimate that oil prices could approach $110 per barrel if disruptions last for several weeks. If the conflict persists longer, prices could potentially reach $170 per barrel.

Such increases would pressure economic growth. Gross domestic product in the UK and the euro area is estimated to fall by around 0.5 percentage points, while inflation rises by about 1 point. In the United States, pressure is evident in prices with inflation around 0.7 points above the pre-conflict path.

Developing countries face greater pressure. India, which imports about 90% of its oil needs, is beginning to feel gas supply disruptions and rising operational costs. Limited fiscal space makes it difficult for the government to expand subsidies without adding to the deficit burden. Similar risks could emerge in other countries, including Indonesia.

In the industrial sector, potential supply chain disruptions are starting to be factored in. About 25% of global aluminium passes through the Strait of Hormuz. Obstacles on this route would disrupt production and distribution. In the agricultural sector, US farmers face surging fertiliser and fuel costs ahead of the planting season, opening risks of production declines and rising food prices.

The World Trade Organization warns that this year’s global trade growth projection of 1.9% could be disrupted if energy prices remain high. Transportation and logistics costs are estimated to increase, pressuring trade in goods and services.

Citing Bloomberg, the market is currently awaiting the direction of the conflict. Delays in the deadline for reopening the Strait of Hormuz once lowered oil prices and triggered a financial market recovery. However, cost pressures persist and continue to flow into various global economic sectors.