Iran war's economic shocks could reverberate for a while

The Iran war's economic consequences risk outlasting the conflict itself. Why it matters: Any swift ceasefire or arrangement allowing safe passage through the Strait of Hormuz won't undo supply shocks that could linger for months — and in some cases, years.

What they're saying: Oil markets "have so far faced logistics disruptions, not true supply destruction," Matt Bauer, a commodity strategist at Ned Davis Research, wrote in a client note on Friday.

"But attacks on South Pars and Iran's retaliation raise the risk that the conflict is shifting toward physical damage of production capacity."

"The direct attacks on energy infrastructure illustrate the war's long-lasting consequences," says Kyle Rodda, a senior financial market analyst at Capital.com, an online trading platform.

"Productive capacity will be offline for an uncomfortably long time, meaning energy prices are likely to fall much slower than they rose."

What's going on: The blockage of the Strait of Hormuz has already upset the global flow of commodities. Now, this week's damage to energy facilities in the Gulf could deepen that disruption.

The attacks wiped out 17% of the nation's natural gas export capacity, Qatar's energy minister, Saad al-Kaabi, told Reuters. The damage likely means less natural gas from the region in the long-term — with nearly 13 million tons of liquefied natural gas sidelined annually for as long as five years, Kaabi said.

Zoom in: Here are some of the impacts from the combination of a shipping blockage and infrastructure destruction: Fertilizer. Natural gas is a key ingredient for fertilizer, and about a third of the world's seaborne fertilizer supply — and almost half of the world's urea — is transported through the Strait of Hormuz. Any fertilizer on the water can't get out.

U.S. farmers who did not pre-order fertilizer might not get enough in time for spring planting, the American Farm Bureau told the AP this week. That could result in lower crop yields, which would put upward pressure on grocery prices into the next year. Higher prices for diesel — which powers agriculture equipment — already risk aggravating food inflation.

Helium. The damage to Qatar's natural gas facilities will also squeeze the production of an important byproduct: helium, a critical input for semiconductor manufacturers racing to keep up with AI-related demand.

Qatar is the world's second-largest helium producer, behind the U.S. "The limited supply of helium will impact Taiwan's ability to manufacture semiconductors, which we all saw back in 2021 can affect the supply of nearly every good, from cars to dishwashers," Sameera Fazili, a former economic adviser to President Biden, said on a call with reporters on Friday.

The intrigue: Economists across Wall Street — plus the Federal Reserve — are penciling in higher forecasts for inflation this year. Others have also marked down GDP and consumer spending expectations.

It's a result of what they anticipate will be a months-long global shock from the Iran War — the effects of which the U.S. won't escape.

What to watch: The scale of the impact on U.S. inflation and growth in the second half of the year depend in part on the extent "there is any permanent damage to oil and gas infrastructure," economists at SMBC, a Japanese bank, wrote in a note this week.

Oxford Economics, for instance, now expects that consumer spending among Americans, adjusted for inflation, will rise by 1.9% this year — which would be the slowest annual growth in 13 years outside the pandemic.