Affordability has become one of the defining economic challenges of the current global environment. While inflationary pressures were already present following the pandemic, the dual impact of the Russia-Ukraine War and the escalating conflict involving Iran has significantly intensified the cost-of-living crisis. These geopolitical events have disrupted energy markets, strained global supply chains, and introduced a level of economic uncertainty that continues to reverberate across households and economies worldwide.
At the centre of the affordability challenge lies energy. The conflict involving Iran has had an immediate and profound impact on global oil markets, particularly due to disruptions in critical transit routes such as the Strait of Hormuz. Even modest supply shocks have historically led to rapid inflationary effects; for example, a 10% rise in oil prices can increase consumer prices in the near term and suppress consumption over subsequent months. More recently, global institutions have warned that oil prices could surge dramatically, with some estimates suggesting increases of up to 50% during periods of heightened conflict.
These rising energy costs ripple through the broader economy. Transportation, manufacturing, and agriculture all depend heavily on fuel, meaning that increases in oil and gas prices translate directly into higher costs for goods and services. Consumers ultimately bear the burden, facing elevated prices at the pump, higher utility bills, and more expensive everyday necessities. The result is a steady erosion of purchasing power, particularly for middle- and lower-income households.
Food affordability has also been significantly affected. The war in Ukraine continues to disrupt global agricultural supply chains, as Ukraine remains a key exporter of grains and fertilizers. At the same time, higher fuel and shipping costs driven by the Iran conflict are compounding food price inflation. In some regions, food inflation is projected to reach levels as high as 9%, underscoring the severity of the situation. This dual shock—reduced supply from Ukraine and increased transportation costs from Middle East instability—has created a perfect storm for global food prices.
Compounding these pressures is the broader economic uncertainty generated by prolonged conflict. The Russia-Ukraine war has already driven inflation expectations higher and created unprecedented levels of financial uncertainty. The addition of a second major geopolitical conflict further destabilizes markets, leading to volatility in currencies, equities, and bond yields. Businesses facing uncertain input costs are more likely to pass those costs on to consumers, reinforcing inflationary cycles.
Central banks have responded with tighter monetary policy, raising interest rates to combat inflation. While necessary, these measures have introduced a new layer of affordability challenges. Higher borrowing costs affect mortgages, personal loans, and business financing, making it more expensive to buy homes, invest, or expand operations. Housing affordability, already strained in many developed markets, has worsened as higher rates intersect with elevated construction costs and limited supply.
The cumulative economic burden has translated into tangible impacts on wages and living standards. In some economies, real wages have begun to decline as inflation outpaces income growth, reducing overall purchasing power. This dynamic creates a feedback loop in which consumers cut back on spending, slowing economic growth and increasing the risk of broader economic stagnation.
As affordability pressures intensify, so too does the political and social urgency to resolve these conflicts. Governments are facing mounting public dissatisfaction, with rising costs becoming a central issue in domestic policy debates. In some countries, officials are already preparing for civil unrest linked to escalating living expenses and economic hardship. At the same time, global institutions warn that prolonged conflict could materially reduce economic growth and entrench inflationary pressures, making recovery more difficult.
The pressure to bring these conflicts to an end is therefore no longer solely geopolitical—it is fundamentally economic. A sustained period of elevated energy prices and disrupted trade flows risks creating long-term structural inflation, undermining both consumer confidence and global growth. Moreover, the Iran conflict has had the unintended consequence of strengthening Russia’s fiscal position through higher energy revenues, potentially prolonging the war in Ukraine and further compounding global instability.
In conclusion, affordability challenges today cannot be viewed in isolation from geopolitical realities. The interconnected nature of global markets means that conflicts in Eastern Europe and the Middle East have direct and immediate consequences for everyday consumers around the world. As energy prices rise, supply chains remain constrained, and financial conditions tighten, the cost-of-living crisis continues to deepen. This reality has heightened the urgency for diplomatic resolution, as restoring stability is not only a matter of international security but also a prerequisite for economic relief and sustainable global growth.
