Will the 1970s not be repeated? Why the Iran war has not triggered global inflation

At the outset of the Iran war, the market widely worried that it would trigger an energy and inflation shock comparable to the 1970s. However, reality has proved these warnings unfounded.

From trade to food prices, the intensity of the current shock is clearly weaker than the dual impact brought by the COVID-19 pandemic and the Russia-Ukraine war in 2022. According to Financial Times columnist Alan Beattie, measured by import price inflation in emerging markets, the Iran shock is far below the level seen during the Ukraine crisis and even weaker than the fluctuations triggered by the credit stimulus and commodity boom resonance in 2016.

Currently, the market is forming a consensus: As long as the Strait of Hormuz remains basically clear, this shock will not evolve into a systemic crisis. Though container shipping rates have recently risen, the driving factors are seasonal demand and traders stocking up ahead of new Trump tariffs, rather than supply disruptions. Inflation expectations remain generally stable, and central bank policy frameworks have fundamentally changed compared to the 1970s.

Limited trade shock: Hormuz is not the "artery"

Unlike the massive container transport bottlenecks in 2021-2022, this Iran war's disturbance to non-oil trade is relatively controllable.

At that time, the transport bottleneck was essentially a demand-side issue—consumer demand for durable goods soared after the pandemic, causing effects similar to a supply shock. In this instance, the blockade of the Strait of Hormuz has not substantially affected container trade. The region's largest transshipment hub, Jebel Ali Port in Dubai, shifted operations quickly to other ports, and rates remained stable during the early stages of war.

Alan Beattie likens the Strait of Hormuz to "capillaries" in the trading system, rather than the "artery" that carries the lifeblood of commerce. This definition fundamentally explains why this shock has not transmitted deep into supply chains.

Food prices stable, fertilizer supply resilient

Food inflation has likewise shown no signs of losing control, a sharp contrast to the Russia-Ukraine war.

The war in Ukraine hit two of the world's largest grain exporters directly, whereas Gulf countries themselves are net food importers, so the direct impact on global food supply is limited. Fertilizer supply was disrupted for a time, but the sowing progress in major production zones in Europe, North America, and Australia (in the southern hemisphere) was not significantly affected.

India, one of the world's largest importers of urea and fertilizer, relies heavily on the Gulf region, but supply circumstances are presently normal. Flexible inventory management and fertilizer deployment have helped major agricultural economies weather the window of supply interruption. Fertilizer exports have resumed, and whether the "supply cavitation" caused by the Strait's closure will have a substantial effect in the coming agricultural season remains to be seen.

Central bank credibility: key defense against inflation spiral

The distinction between the current situation and the 1970s lies not only in the strength of the supply shock but also in the fundamental changes in policy frameworks.

During the Ukraine crisis, even though price levels rose significantly, wage-price spirals remained mild. Central banks raised rates quickly, and ultimately controlled inflation without triggering a recession—enabling a global soft landing in 2024. Alan Beattie attributes this outcome to the institutional capital built up over generations of central bank officials anchoring inflation expectations via credible monetary policy since the 1970s.

He also points out that future risks should not be ignored. The El Niño weather event later this year represents a potential shock, and the status of the Strait of Hormuz is far from stable—Trump announced this week that the ceasefire agreement with Iran is terminated, though he's made similar statements previously. Ultimately, whether an era falls into stagflation depends on how policymakers, consumers, and businesses respond, not simply on the energy price shock itself. Based on current evidence, the Iran war has not yet become a turning point toward a return to the 1970s.

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