The war in the Middle East once again exposes the fragility of global energy and food systems and the inflationary risks they entail. The disruption in the Strait of Hormuz, a critical artery through which 20-30 per cent of the world’s oil, gas, and fertiliser trade passes, has already pushed up energy, shipping and fertiliser prices. 

Despite recent hopes of de-escalation, Brent crude oil, a key international benchmark used to price oil, remains around US$100 a barrel, around 50 per cent higher than a year ago. European oil prices have risen even more sharply, nearing US$150 per barrel. US oil cargoes remain cheaper due to stronger supply reserves there. Europe’s main wholesale gas benchmark also rose by more than 50 per cent between February and March. Global fertiliser prices are also surging: urea, a key agricultural input, rose to $725.6 per tonne from $472 a month earlier, and recent trade offers now cluster around $1,000 per tonne. Shipping costs are rising as well, driven by surging tanker rates, war-risk insurance premiums and higher fuel surcharges. Given the role of these inputs in food production and transport, the risk of broader cost-of-living shocks is already clear. 

Against this backdrop, familiar dynamics from the 2022 inflation crisis are re-emerging. Then, supply disruptions linked to Covid-19 and the Ukraine war were amplified by market concentration, speculative trading, weak price oversight and the ability of firms with market power to turn volatility into wider margins. The IMF later estimated that profits accounted for 45 per cent of price increases in the euro area during the 2022 inflation surge. 

As our recent FEPS report shows, a key lesson from 2022 is that inflation in food and energy was driven not only by supply shocks, but also by corporate pricing power and profit growth. Today, energy firms are once again benefiting from higher prices, even as volatility spreads across global economies. The risk today is not only that the war pushes up costs, but that firms along the energy and food supply chains manage to convert the disruption into higher profits, intensifying the cost-of-living shock. Preventing a repeat, therefore, requires policy responses that address both rising costs and dominant firms’ ability to turn crises into excess profits. 

Our report shows that firms across the energy and food supply chain turned disruption into extraordinary profits:

• Energy companies benefited from rising wholesale prices, with the 65 largest European firms increasing profits by more than 50 per cent compared to pre-pandemic levels.
• Fertiliser prices tripled – alongside profits of the largest fertiliser producers, which rose from around $15 billion annually before the pandemic to roughly $45 billion per year.
• Shipping companies capitalised on bottlenecks in a highly concentrated industry. Profit margins surged from 1-2 per cent before the pandemic to around 50 per cent in 2022, while total profits increased from $14.7 billion to $117.1 billion. The surge in shipping costs alone added an estimated 2 percentage points to global inflation.
• Commodity traders recorded exceptional earnings amid heightened price volatility, driven in part by speculative activity in commodity markets.
• Food processors and retailers, such as Nestlé, used their market power to pass on rising costs while maintaining high margins, ultimately increasing the burden on consumers.

These findings confirm that supply shocks were amplified by profit growth, thereby raising both farmers’ input costs and consumer food prices. 

What should be done now?

The main policy response to the 2022 inflation surge relied on monetary tightening through interest rate hikes. But this is a blunt instrument: interest rate hikes may raise borrowing costs and reduce demand, but do little to address inflation driven by supply shocks and corporate pricing power. Recent IMF evidence suggests that countries that raised rates more aggressively did not achieve better inflation outcomes, casting doubt on the effectiveness of rate hikes, particularly in the face of large, global supply shocks. 

A broader toolkit is needed. First, governments should be prepared to use targeted price controls, particularly in energy markets. When prices spike rapidly, early intervention can prevent shocks from cascading through the economy while also limiting fiscal costs compared to broad income support schemes popular in 2022-2023. Countries that used more targeted price controls, such as Spain and Portugal, managed inflationary pressures better and had lower cumulative inflation than countries that responded little or too late. 

Second, windfall or excess profit taxes can recapture crisis-related gains for public purposes and help finance inflation-mitigation policies. Third, governments should implement stronger price and profit monitoring across supply chains. Without transparent and timely data, policymakers cannot distinguish between cost pass-through and opportunistic pricing. Such data infrastructure is key to acting early through price controls, windfall taxes, or stronger regulation.

Beyond crisis management lies the deeper challenge of structural resilience. European economies remain net importers of energy, leaving them exposed to global price shocks. Accelerating the shift away from fossil fuels is therefore both a climate imperative and a macroeconomic stabilisation strategy. Similarly, agriculture’s dependence on synthetic fertilisers and imported feed makes food prices highly sensitive to global energy markets. A shift toward more resilient and sustainable food systems can reduce these vulnerabilities over the time.

Speculation in commodity markets should also be more tightly regulated, particularly in food commodities, where volatility can have severe consequences on living costs. Finally, governments should strengthen strategic reserves for key commodities, including fuels, fertilisers, and essential crops. Strategic petroleum reserves in the US have proven their usefulness in stabilising markets; similar mechanisms could help buffer food and fertiliser markets against future shocks.

The current crisis will likely raise living costs in the near term. But it also offers a chance to build more resilient energy and food systems before another input shock becomes another full-blown cost-of-living crisis. The EU and its member states should work towards long-term energy and food resilience, decrease supply bottlenecks and accelerate the green transition. Otherwise, every geopolitical crisis becomes another inflation shock.

Photo credits: Shutterstock/somkanae sawatdinak