The US-Iran conflict may seem geographically distant, but its economic and social consequences are increasingly being felt much closer to home.
Recent developments offer grounds for cautious optimism. A ceasefire framework has been announced, and oil prices have fallen from the highs reached during the conflict. But it is still unclear whether the agreement will lead to a durable settlement, how quickly shipping through the Strait of Hormuz will return to normal, and how long the economic after-effects will persist.
This latest shock is arriving in a difficult context, with many households, communities and public services still feeling the effects of the pandemic, the energy crisis and the cost-of-living crisis. Longstanding inequalities mean that economic shocks often have the greatest impact on those with the fewest resources to absorb them. But timely research and analysis is needed to better understand these uneven consequences and how and when government should respond.
Impact on businesses, people and communities
Oil and gas markets experienced sharp volatility during the conflict, reflecting concerns about disruption to one of the world’s most important energy routes. While prices have fallen since the ceasefire announcement, energy markets remain highly sensitive to developments in the region and there is considerable uncertainty about how quickly normal trading conditions will return.
Some businesses are responding to that uncertainty by stockpiling goods and materials, bringing forward orders and reviewing supply chains. Some may be temporarily insulated through fixed energy contracts or hedging. These precautionary measures may reduce immediate risks for individual firms, but they can also increase costs and prolong disruption across the wider economy.
Rising energy and transport costs are increasing operating expenses across a range of sectors, while uncertainty has made and will continue to make investment decisions more difficult. Energy-intensive industries, agriculture, manufacturing and logistics businesses may be particularly exposed if higher prices and supply constraints persist.
The effects are already feeding through to families across the UK. Fuel prices have risen in recent months, increasing transport costs for households and businesses alike. At the same time, households are facing a further rise in energy bills as the energy price cap increases, adding to existing pressures. For low-income households, rural communities and people who rely on driving for work, even relatively modest increases in petrol and diesel prices can have a significant impact on already stretched budgets.
In the longer term, cost of living pressures can affect how communities function, increasing demand for local support services and voluntary organisations while placing additional strain on community resources. There is a need for evidence on how different communities are experiencing these pressures, whether existing support systems are sufficient, and what policy responses can help strengthen community resilience and social cohesion during periods of economic uncertainty.
Looking beyond the immediate crisis
The key point is that economic and social consequences often outlast the events that trigger them, and can, in some cases, lead to lasting economic scarring. Supply chains take time to recover. Markets take time to stabilise. Households take time to rebuild depleted finances. Communities take time to rebuild. Even with a ceasefire in place, many of the effects will continue to unfold over the coming months and over the longer term.
The challenge is not simply understanding the current shock. It is understanding what it tells us about the UK’s resilience to future shocks, given what we know about how international events can rapidly affect living standards, inflation and economic confidence in the UK.
There is therefore a need to ask broader questions. How can future vulnerabilities be reduced? What lessons can be learned from previous crises? What investments in resilience might reduce the impact of future disruptions?
What should policymakers be thinking about?
Policymakers face a difficult balancing act.
Intervening too early could prove expensive if markets stabilise. Acting too late can leave households and businesses exposed to avoidable hardship.
The experience of the previous energy crisis demonstrated that broad, untargeted support can be delivered quickly but often comes at a very high fiscal cost. More targeted support can be more efficient, but identifying those most affected is often difficult because of limitations in available data and administrative systems.
This creates a series of important questions. Which households are most exposed to rising energy and fuel costs? Which businesses face genuine risks of contraction or closure? What forms of support are likely to provide the greatest benefit for the lowest cost? And what are the longer-term consequences of intervention, including impacts on public finances and future resilience?
These are not questions that can be answered through instinct alone. They require evidence.
Supporting responsive research
Funders have an important role to play.
Periods of rapid economic and social change often expose significant evidence gaps like these. Traditional multi-year research funding mechanisms are rarely designed to respond at the pace required by policymakers.
This is why the Nuffield Foundation has launched rapid response research funding focused on understanding the economic and social impacts of the US-Iran conflict on the UK.
We will support short, policy-relevant projects examining issues such as rising energy and fuel costs, impacts on households, communities, and businesses, pressures on public services, and lessons for future resilience. The aim is to generate practical evidence that can help policymakers respond effectively, minimise impacts on people’s lives and strengthen resilience to future shocks.
The conflict has exposed vulnerabilities in energy markets, supply chains and household finances that extend beyond any single crisis. Understanding who is most affected, which policy responses work, and how resilience can be strengthened will help the UK not only manage the consequences of this shock but prepare more effectively for future ones.
Applications for the Nuffield Foundation’s UK impacts of the US-Iran conflict are now open. We encourage researchers, policy institutes and analytical organisations with relevant expertise to apply. The deadline for applications is 10 July with decisions made at the end of July.
