War economies run on price gaps

Economic research shows that conflict-driven disruptions to trade and supply chains widen and prolong differences in the price of essential goods. The International Monetary Fund’s 2023 World Economic Outlook links this dynamic to higher trade costs and restricted market access, which prevent prices from converging across regions. In this context, war reorganizes markets around these price gaps, creating incentives to move goods toward higher-price areas even under conditions of risk and instability.

The 2026 Iran war illustrates this dynamic at a global scale. Disruptions to shipping through the Strait of Hormuz, which normally carries about 20 percent of global oil flows, have fragmented energy markets, forcing shipments to halt or reroute and creating immediate and uneven price increases across regions.

The Iran war as a live case of price divergence

The 2026 Iran war has produced one of the most severe energy shocks in recent decades, with oil prices rising above $100 per barrel following disruptions to shipping and production. As the International Monetary Fund warned in March 2026, sustained increases in energy prices linked to the conflict risk higher inflation and weaker global growth.

These price increases are highly uneven. Energy-importing regions such as Europe and Asia face elevated costs due to transport risks, insurance premiums, and supply shortages, while constrained exporters in the Persian Gulf experience delayed exports and accumulating oil in storage and tankers as shipments are unable to move through the Strait of Hormuz. Similar fragmentation is emerging in food markets, as fertilizer supply constraints and higher fuel costs raise prices most sharply in import-dependent economies.

At the center of these dynamics is arbitrage, the practice of profiting from price differences across markets. IMF analysis in its 2023 World Economic Outlook shows that when markets are disrupted and trade becomes more difficult, prices vary more across regions, encouraging goods to move to places where they are more expensive.

The Iran war illustrates this mechanism in real time. The closure of the Strait of Hormuz has stranded oil shipments and cut off supply to major importers, with reports indicating that countries in Asia are paying higher prices and scrambling to secure alternative fuel sources.

At the same time, oil and fuel are being rerouted from producers outside the Gulf, including the United States and West Africa, toward higher-price markets in Asia and Europe, according to recent energy market reports. In some cases, shortages have led to hoarding and informal fuel trading in affected regions.

Evidence from the Russia-Ukraine War

The Russia-Ukraine War provides a critical point of comparison. A 2023 study in Humanities and Social Sciences Communications finds that disruptions to grain, fertilizer, and energy exports created significant variation in prices across countries, with uneven price impacts leaving countries in North Africa and the Middle East facing sharp food inflation while others adjusted through rerouted trade flows. Ukrainian grain exports were redirected through the Black Sea Grain Initiative and overland routes via Poland and Romania, while shipping firms and brokers operating through Turkey and the United Arab Emirates played a growing role in redirecting supply.

The 2023 IMF study similarly shows that sanctions and transport constraints fragmented energy markets, producing substantial regional price gaps. European prices rose sharply relative to other regions, prompting shifts toward alternative suppliers such as the United States and Qatar, alongside increased reliance on rerouting networks for liquefied natural gas and oil shipments.

Lessons from Middle Eastern Conflicts

Earlier conflicts in the Middle East reinforce the same pattern. Research on Syria and Iraq shows that war produces highly fragmented markets, where prices for identical goods vary significantly across territories.

Renad Mansour and Mark White of Chatham House, a London-based policy institute, argue that these markets are not accidental but responses to new incentives. Writing in June 2025, they note that “economic actors do not simply disappear in war; they reorganize around new incentives and constraints.” This reorganization often takes the form of informal trade networks that exploit price differences across frontlines and borders.

In Syria, for example, fuel and food prices varied widely between government-controlled areas and opposition territories. Traders and smuggling networks moved goods across these boundaries, profiting from the gaps. These dynamics illustrate how price divergence sustains economic activity even in highly unstable environments

The persistence of trade under conflict

In the Iran conflict, price fragmentation is already redirecting global trade flows in ways that may persist beyond the war. As documented by past and contemporary economic research, prolonged disruptions to energy and commodity markets tend to shift supply chains toward more stable or politically aligned routes.

As these adjustments take hold, higher energy and food costs are likely to weigh most heavily on import-dependent economies while reinforcing new trading relationships formed during the conflict. Over time, these patterns could produce lasting effects on inflation, trade alignment, and economic integration.