June 2026

Tension in the Middle East is thrusting energy security to the forefront of sovereign risk, alongside growth and debt. We examine the fault lines in global energy, food and water systems — and the potential implications for sovereigns and companies.

Key takeaways

• Key chokepoint disruptions strain energy, food, and water systems, escalating risks to global economic stability and supply chains beyond oil and gas to fertilisers and chemicals.
• The energy-food-water nexus reveals a cross-sector industrial input shock, reshaping global supply chains and inflation dynamics.
• Major importers like India, China, and other Asian economies face heightened vulnerability, with trade rerouting and embedded inflation across construction, food, and manufacturing sectors.
• Persistent inflation risks and supply security challenges call for stress testing and hedging strategies.

Conflict in the Middle East and disruption at the Strait of Hormuz are primarily affecting oil and gas markets. But the effects are spreading into fertiliser supply chains, food prices, electricity generation and water security, especially in the Gulf Cooperation Council (GCC)¹ and across Asia.

If the conflict becomes prolonged, it will be unclear when energy flows could return to normal. Extended disruption could significantly raise risks to global growth and inflation, particularly in Asia.

But this is not just an oil story. It is a broader story about how a geopolitical shock can move through supply chains and into inflation, corporate margins, sovereign risk and long-term investment themes.

We believe that anticipation and response to risks borne by energy, food and water systems are likely to serve better in the long term.

Conflict assessment

The situation remains highly fluid. Even if a ceasefire lasts, global energy market disruption will likely persist for several months. Oil and liquid natural gas (LNG) prices may remain elevated into the second half of 2026, and potentially beyond. The growth and inflation impact would vary significantly across countries, with the largest drag falling on energy-importing Asian economies and parts of Europe. If confidence weakens materially, it could increase the risk of a deeper slowdown.

The energy-food-water nexus

Energy supply disruptions can ripple through food production systems and water infrastructure, turning a localised energy issue into a broader risk. This can affect economic systems through four main pathways:

• Increased fertiliser production costs
• Challenges in agricultural logistics
• Higher food processing costs
• Reduced availability of household cooking fuel

Potential energy system risks

• LNG markets are highly exposed to risk due to concentrated supply and no alternative routes if the Strait of Hormuz is blocked. Restarting shipments would be cautious, keeping Brent oil prices elevated. Strategic reserve releases may limit spikes but won’t fix refined product shortages, especially in Asia where heavy crude is scarce, risking diesel, marine, and aviation fuel supply.
• Helium is a critical vulnerability; even small supply interruptions may significantly impact healthcare, semiconductors, and aerospace industries, increasing costs and reducing availability. These disruptions may not be fully reflected in standard energy price benchmarks, masking their broader economic effects.
• Liquefied petroleum gas (LPG), mainly propane and butane, is transported under pressure or refrigeration via pipelines, trains, trucks, barges, and ocean tankers. International trade depends on specialised ships like VLGCs (very large gas carriers) on key routes. Disruptions can affect production, export loading, transport, and local distribution.
• Asia relies on external LPG suppliers – mainly the US, Saudi Arabia, Qatar, UAE, and Kuwait – with some trade involving Iran when sanctions permit. Some of the risks include losing Gulf LPG access, longer shipping routes, fewer ships, higher freight costs, and terminal congestion.

Energy system implications by country

In South and Southeast Asia, we believe the main risks are social instability and rising inflation. In East Asia, there is a greater risk of reduced profit margins for industries and a potential slowdown in industrial activity. Japan is better protected against LPG shortages because of its stockpiles and diversified supply sources, although it may still be affected by changes in price benchmarks and shipping costs.

Potential risks to food security resulting from energy disruption

LPG underlies food systems through four main pathways.

• Household cooking: In many developing countries, such as India, Indonesia, Bangladesh and Vietnam, LPG is the main fuel used for household cooking. Any changes in LPG supply or price directly affect food preparation for millions of families.
• Fertiliser production: Hydrocarbon feedstocks like LPG are vital for producing fertilisers, which are critical for supporting 30-50% of global crop yields². The energy component of fertiliser production is a major factor in how energy prices influence food costs.
• Agricultural logistics: Fuels such as LPG are used for powering farm machinery, vehicles and irrigation systems. Disruptions or increases in fuel costs can make it more expensive to move and produce food.
• Food processing: Many food processing activities require industrial heat, which is often generated using LPG. Higher LPG prices or shortages can therefore raise food manufacturers’ costs and affect the availability and affordability of processed foods.

Potential risks to water security resulting from energy disruption

The World Bank notes that countries in the Gulf Cooperation Council (GCC) are responsible for producing almost half of the world’s desalinated water³. This provides approximately 75% of the urban water supply in the GCC⁴, making it essential for drinking, agriculture, and industrial activities required to maintain current population levels.

Some GCC countries have less than 100 cubic metres of renewable fresh water per person annually – well below the threshold of 500 cubic metres that defines absolute water-scarcity⁵. Many of the GCC’s desalination plants are in coastal locations, facing risks such as direct military attacks, interruptions to power supply, threats to maritime security, and the possibility of seawater contamination.

Investment implications

Overall, energy-importing countries will likely face negative trade effects. Energy-exporting nations may experience mixed outcomes because of supply limitations, higher insurance costs and higher logistics expenses.

For sovereigns, the interconnection between energy, food and water could mean that energy disruptions can create lasting inflation and fiscal challenges, especially in countries with extensive food and fuel subsidies. This may increase not only short-term price risks but also medium-term concerns about sovereign balance sheets and political stability.

Our assessment of risk to sovereigns is presented in Table 2 below. This considers each country’s overall exposure and vulnerability across energy, food and water systems.

How corporates are exposed to the energy-food-water nexus

Some of those most likely to benefit from structural tailwinds include:

• Exporters of LPG in developed markets
• Shipping firms
• Companies involved in water desalination technology and infrastructure
• Some US or European refining and chemical businesses

In contrast, the main risks are centred in the Middle East and Asia, especially among petrochemical and fertiliser companies, due to rising feedstock and energy costs and increased earnings uncertainty. Consumer sectors in emerging markets and developing economies, particularly India, Pakistan, Bangladesh and Indonesia, may be at risk, along with corporations in water-scarce regions, most notably Qatar and Bahrain.

Potential long-term investment themes

Future investment activity could be shaped by the ability of both governments and businesses to strengthen and adapt energy, water and food systems, particularly through infrastructure upgrades, secure supplies and more diversified supply chains.

Within the energy, water and food sectors, several investment themes have the potential to accelerate, including:

• Water infrastructure such as desalination plants powered by renewable energy, improved wastewater recycling and water efficiency technologies.
• In food systems, key areas include low-carbon fertilisers, precision agriculture and electrified food transport.
• In energy, focus is likely to sharpen on the electrification of industrial heating, green ammonia and renewable hydrogen production.

Conclusion

We believe some of the key chokepoints in the global economy include energy transport routes, fertiliser manufacturing that relies on hydrocarbons and desalination facilities located on fragile coastlines. If these critical points are disrupted, the effects can spread quickly through supply chains, affecting inflation, food availability and economic stability across regions.

The current situation demonstrates the growing importance of global chokepoints and the interconnectedness of energy, food and water systems in investment analysis. When one sector is affected, the consequences often spill into others, creating significant macroeconomic effects.

For long-term investors, the crisis may highlight the relevance of the energy-food-water nexus to broader economic analysis. Resilience is increasingly being viewed as an investment opportunity rather than simply a defensive strategy. Accounting proactively for risks spanning energy, food, and water systems may help us be better positioned to navigate near-term volatility as well as long-term structural shifts.