The long-term cost of passage

The oil price has been blamed for most of the inflation narrative since hostilities in the Gulf began on 28 February. On Thursday, Brent was trading at $104/barrel as at the time of writing, 5% higher on the day, up from around $72/barrel on 27 February, and European diesel prices have roughly doubled in that time. The inflationary channel, however, which is receiving far less attention, and the one more likely to keep prices elevated after crude prices eventually retreat, is the cost of moving and protecting goods in transit. Freight, war-risk cover, longer routings and precautionary inventory all sit inside the landed price of almost every imported item, and none have shown any willingness to fall.

The increased cost of shipping

Insurance is the clearest example of this point. Before the conflict, hull war-risk cover (special insurance cover for structural and/or machinery damage on a vessel caused by a war, civil conflict, terrorism and political violence) for a transit through the Strait of Hormuz usually cost between 0.15% and 0.25% of vessel value. The latest published indications, however, ahead of September's renewed US-Iran exchanges placed the additional premium at 7.5% to 12.5% of hull value per transit. At 10%, a $150 million tanker that once paid roughly $375,000 for a single passage now pays $15 million. Howden Re (the insurance broking arm of insurance and risk management company, the Howden Group) estimates that the conflict could generate $2 billion to $3 billion in war, terror and political violence claims against an annual global premium pool for the segment of only $1.5 billion to $2 billion, so underwriters will need to rebuild more than a year of lost premiums through pricing. The firm also regards the repricing of the marine war-risk baseline across both the Red Sea and Hormuz to likely be permanent, and the Red Sea precedent supports that view: attacks there fell sharply in late 2025 while premiums took months to follow.

The cost of cover does not stay confined to freight invoices, since it also influences how much oil reaches the market. Analysts at BRS Shipbrokers have noted that premiums near 10% of hull value are absorbed by crude carriers on elevated earnings but have deterred smaller product tankers from transiting Hormuz, and with crude exports through the strait at 3.8 million barrels per day in May against 17.5 million barrels per day in 2025, every vessel that declines the passage removes supply that buyers must replace elsewhere.

That substitution has shifted demand towards Atlantic basin barrels from the US Gulf, Brazil and West Africa, which supports Brent directly, while the higher per-barrel insurance burden on smaller product cargoes helps explain why the cost of diesel has outpaced crude. Forward pricing points the same way: the freight futures index, the Breakwave Wet Freight Futures Index, which prices the expected cost of moving crude in the months ahead, has risen roughly 11-fold over the past year, an indication that the market regards elevated transport costs as persistent rather than transitory.

Container freight tells a similar, but messier, story. Independent maritime consulting service Drewry's World Container Index stood at $4,434 per 40-foot container on 1 October, compared with $1,687 in mid-October 2025, while the Shanghai to New York rate of $10,428 is more than three times the $3,236 recorded a year earlier. Not all of this can be attributed to the Gulf, because Asia-Europe rates have now declined for 12 consecutive weeks on weak demand and increased Suez transits. What matters for inflation is that carriers have demonstrated an ability to defend rates through capacity discipline, and with annual contract negotiations approaching, current spot levels risk being carried into 2027 pricing.

Inflation filtering through the system

Producer data already shows that these costs are moving through the system. In the United States (US), the Producer Price Index (PPI) inflation for final demand transportation and warehousing services rose 13% in the 12 months to August, against headline Consumer Price Index (CPI) inflation of 3.4% over the same period, and airline fares were up 23.4% year-on-year. That gap results in either compressed margins or a deferred pass-through to the consumer, and most companies choose the latter.

Inventory behaviour adds a further layer that has nothing to do with the oil price, as global consulting firm GEP's supply chain survey showed buffer stockpiling in June at its highest level since January 2023, with manufacturers choosing to hold more stock rather than trust a fragile ceasefire. That stock carries financing, warehousing and working capital costs at prevailing interest rates, which are priced into goods regardless of where Brent trades.

Europe shows how this is beginning to reach consumers. The flash estimate from Eurostat, the region's statistical office, showed euro area inflation rising to 3.8% in September from 3.2% in August, and while energy costs, at 18.8% year-on-year, did most of the work, core inflation also edged up to 2.5% and services to 3.2%, which is consistent with transport and logistics costs moving through distribution chains rather than appearing only at the pump. Although one month does not establish a trend, we are sure we will see this trajectory continue. Economies with weaker currencies face a compounded version of the same problem, since freight and insurance are invoiced in dollars and any depreciation of their value adds to the landed cost, even before a container reaches port.

Central banks will be watching core measures that remain stickier than the oil price alone would suggest, which argues for caution towards rate-cut expectations built on a retreat in crude. For importers, hedging only the currency exposure on a purchase no longer covers the full cost risk, since freight and insurance surcharges are quoted separately and can be repriced at short notice.