Spillover effects of Middle East conflict now knocking at door of US: Chinese experts

More than a month after the United States and Israel launched large-scale military strikes against Iran, the conflict’s spillover effects have now spread to global commodity markets and supply chains, and has also begun to backfire on the U.S. economy itself, said Chinese experts.

Since the outbreak of the conflict on Feb 28, prices of energy, logistics, food, and other essentials have been rising steadily across the United States.

According to the American Automobile Association (AAA), the national average gasoline price has surged by 35 percent over the past month, reaching its highest level in nearly four years.

In addition, due to the escalating tensions in the Strait of Hormuz, nearly half of global fertilizer trade has been disrupted, causing the price of urea, the most commonly used fertilizer, to spike by nearly 30 percent, inflicting significant losses on U.S. agriculture.

Diao Daming, vice dean of the National Academy of Development and Strategy at Renmin University of China, said that sharp rises in the prices of daily necessities are now inevitable this year in the United States.

“Given the current development, a 10 to 15 percent increase in everyday consumer goods prices this year is well within expectations. Moreover, transportation costs for raw materials used in manufacturing and industrial sectors are also rising, making the so-called manufacturing reshoring even more difficult. At the same time, this is directly triggering volatility across financial investments and other sectors. In fact, we are already seeing the impacts on U.S. pensions and healthcare benefits, and the impacts on financial investments are also evident,” said Diao.

“This shows that the Iran conflict is having a clear structural and systemic negative impact on the United States, spreading from oil prices to everyday consumer goods, clothing, food, housing, transport, and even pensions and healthcare,” said Diao.

However, while most industries are being battered and the economy is facing downside risks, some special interest groups, particularly the military-industrial complex, have continued to profit handsomely from the conflict.

The U.S. Department of Defense has recently submitted an additional budget request of over 200 billion U.S. dollars to Congress, the bulk of which would flow directly to the military-industrial complex.

Moreover, data from Rystad Energy, an Oslo-based global energy intelligence and business consultancy firm, showed that if the average price of crude oil reaches 100 U.S. dollars per barrel this year, U.S. shale oil producers could see their free cash flow increase by approximately 63 billion U.S. dollars. These energy capitalists are just key financial backers for U.S. President Donald Trump’s campaign team.

“Some of those close to Donald Trump or with close ties to his camp appear to be taking advantage of the market fluctuations to profit from them. This gives an impression that what should be a major decision affecting global economic stability and regional security has instead turned into a gambling game. The so-called decision-making totally disregarded America’s interests or global security. Instead, it only focused on identifying the timing for more extreme measures that benefit certain individuals. It has become nothing more than a game, a gamble, in which a small minority in power in the United States seeks to extract profits from society and the market,” said Diao.

The UN Trade and Development (UNCTAD) released a report on Wednesday, warning that global merchandise trade is expected to slow sharply, from about 4.7 percent growth in 2025 to between 1.5 and 2.5 percent in 2026, assuming the Middle East conflict does not intensify further.

Fatih Birol, head of the International Energy Agency, has also warned that the current conflict in the Middle East is having a more severe impact on oil than the 1973 and 1979 oil crises in combination, and an even greater impact on natural gas than the Russia-Ukraine conflict.

“If the conflict does not see substantial de-escalation by the end of April, the global economy in 2026 will likely face the most severe shock since 2020. From a global structural perspective, the role of the United States as a global hegemony has further declined. A growing number of analysts believe this conflict marks a new starting point for the end of U.S. hegemony. Its strategic credibility and ability to provide security protection will both erode. In this context, countries around the world will see a further rise in their awareness of national security and sovereignty,” said Wang Wen, dean of the Chongyang Institute for Financial Studies at Renmin University.

Farmers across the U.S. Midwest, a major agricultural hub with over 200 million acres of cropland, are facing unprecedented challenges as the cost of essential agricultural inputs, particularly diesel and fertilizer, has surged in recent weeks.

This sharp increase is largely attributed to the ongoing U.S.-Israeli war with Iran, which began in late February, and its ripple effects on global markets. The rising expenses are casting a shadow over the upcoming planting season, threatening to erode profitability for many.

At a farm in southern Illinois, preparations for planting season are underway, a process that critically relies on the application of fertilizer. However, the cost of this vital resource has escalated dramatically.

Brian Duncan, a farmer in Illinois, highlighted the global nature of the impact.

“The Strait of Hormuz is very important for transit of fuel and fertilizer, and it’s a global market. So even if the shipments that were coming here are not impacted, what we will see is a global rise in price because of that insecurity, and it will impact us here,” he said.

With many U.S. farmers locking in fertilizer prices last year, the full impact on farmers is only likely to be felt later in the year, if the conflict continues and fertilizer prices remain high.

Robb Ewoldt, a farmer in the neighboring state of Iowa, echoed these concerns. He noted that while farmers have faced high costs before, the current situation is compounded by depressed commodity prices for crops like soybeans and corn, meaning farmers face the prospect of producing at a loss this year.

“We have higher cost, and that’s the biggest thing. We have had our costs be higher in the past, but right now, our commodity prices are a little bit depressed, and so it’s making it very challenging to be profitable and make a positive cash flow for the year,” said Ewoldt.

As fertilizer prices skyrocket, concerns are growing for many farmers. In the longer term, if input costs including fertilizer remain high, the consequences for farmers could be dire.

“The sentiment is, you know, when I go to meetings, we think, well, there’s going to be, some of us aren’t going to be here next year because we’re not going to be in business,” said Ewoldt.

“I’d say it’s a time of concern, perhaps a time of survival mode, where we’re looking to cut costs, not make any new expenditures, and try to hang on for either a better marketplace dynamic or a significant lowering of our input costs,” said Duncan.

As the planting season commences, the inherent optimism of farmers will be put to the test against a backdrop of economic uncertainty and geopolitical volatility.