Current Issues: US-Israel-Iran conflict: environmental implications

Late February’s joint US-Israeli strikes triggered an immediate Iranian response. Prompted by a series of provocations and retaliatory actions in the region, diplomatic channels have become strained between the powers involved. The United Nations has urged dialogue but is struggling to mediate amid stalling peace talks.

The fallout is already spreading through energy and food systems, supply chains and carbon emissions, with consequences that reach far beyond the region. This is likely to accelerate the broader shift towards a more fragile supply-side environment, where geopolitical tensions, rising climate-related disruptions, and a slowdown in globalisation are collectively making supply chains less resilient. The conflict is not just a geopolitical event, but a macroeconomic shock, transmitted through oil, gas, shipping and insurance costs. 
For long-term investors, the significance of the US-Iran conflict lies not only in heightened near-term volatility but in its exacerbation of longer-term systemic risks. We explore three broad areas of impact, highlighting the key developments that investors should be aware of:

1. Global energy-system disruption
2. Food-system and supply-chain instability
3. Adverse effects on climate and the environment
4. Global energy-system disruption

Disruption is rippling through markets at an alarming rate, particularly when it comes to energy supply and demand. The effective closure of the Strait of Hormuz – a critical maritime corridor for around 20% of global energy trade, including seaborne oil and liquefied natural gas – has caused oil prices to rise, frequently reaching over $100 per barrel. This shock, or fluctuation in prices, is impacting global energy supply. In turn, this is driving energy-related inflation rises across major advanced economies. 
In the short term, some governments are delaying phase outs or increasing fossil-fuel production to secure supply, increasing near term emissions exposure. But over the longer term, support for renewable energy could grow, with potential for new policies. At the same time, if the prices of fossil fuels continue to go up, this'll improve the relative economics of electric vehicles, solar, batteries and other clean energy technologies.

Food-system and supply-chain instability

Global supply chains are also being hit hard by the conflict. Shocks to shipping and energy inputs are elevating agricultural costs: high fertiliser prices and halts in production lines are amplifying global food security risks. 
The impacts are numerous: blocked agri-food shipments, surging freight costs (up 300–500% on some routes), higher transport expenses and disruptions to helium, specialised gases and petrochemicals. This volatility – spanning major sectors including energy, industrial, technology and manufacturing – directly impacts the broader global inflation picture. Since the onset of conflict, inflation levels have risen, prompting major central banks to hold, or raise, interest rates.

Adverse effects on climate and the environment

Ongoing military operations, energy-infrastructure damage and shipping re-routing are all contributing to an increase in near term greenhouse gas emissions. This slows progress on national climate targets, including the move towards a low-carbon economy. 
Early reporting indicates that the first two weeks of conflict alone produced roughly 5 million tonnes of CO2. To put this into perspective, the global carbon budget was drained more quickly by the conflict than by the combined activities of 84 countries.
Climate-damage incidents are rife. Three hundred cases of environmental damage have been reported, with the long-term pollution effects likely to last for years. And the conflict’s effects on humans and ecosystems are clear. Attacks on oil depots and energy facilities have produced toxic ‘black rain’, releasing hydrocarbons, polycyclic aromatic hydrocarbons and heavy metals over Tehran.

Summing up

The conflict in the Middle East creates a vast range of implications for the environment and for investors. And geopolitical tensions show no signs of abating. The conflict presents a short-term climate setback, but there are also longer-term scenarios where it could act as a climate-transition catalyst. Disruption to food systems and global supply chains may have far-reaching sustainability effects. Meanwhile, energy-system fragility and greater inflation uncertainty underscore the importance of portfolio resilience and diversification across both geographies and asset classes.

If you want to discuss any of the themes in this blog, please reach out to André or get in touch with us.