The damage is already in the ground

AI disclosure: This analysis was produced through MarketImpact's AI-assisted pipeline: automated data collection across multiple sources and languages, with agent-assisted synthesis. All analytical conclusions, country assessments, and editorial judgement are the author's own, verified against primary sources. How we use and verify AI:marketimpact.org/how-we-use-ai.

This is the ninth piece I have published on the economic transmission of the Iran war. The earlier ones traced the insurance blast radius ("The Strait Stays Closed"), the aviation fuel cliff ("The Jet Fuel Cliff"), the structural contraction facing the humanitarian system ("Seven Propositions for the Next Eighteen Months"), and the evidence base showing that the system is inside this crisis, not outside it ("The System Is Inside the Crisis"). All of that work was built on a series of country papers I authored as lead consultant to the Mercy Corps Crisis Analysis team. Those papers are now published. This piece walks through what they found and what connects them.

The team that produced this series is no longer operational. Mercy Corps has not continued the crisis analysis function at global level, a consequence of the same funding contraction this series documents. These papers are the final analytical outputs from that work.

The full series is available at mercycorps.org/research-resources/hormuz-to-hunger.

The synthesis

Five transmission channels run across all six case countries: fertiliser, retail fuel, shipping and insurance, currency and purchasing power, and remittances. The core finding is that future food insecurity has already been written into current harvests. Farmers in Somalia, Sudan, Pakistan, and Ethiopia are making planting decisions right now under inflated input costs. Global urea rose 85 per cent between December 2025 and March 2026. The FAO Chief Economist warned that disruption beyond 40 days triggers farmer behavioural responses, reduced fertiliser use, crop switching, smaller planted areas, that carry through to the 2026 and 2027 harvests. That threshold was crossed on 9 April, during the ceasefire window.

The timing means that even if the diplomatic track succeeds, part of the agricultural damage is already locked in. By the time the food price data confirms it, the prevention window will have closed.

Pakistan

The shock landed here faster than anywhere else in the series.

Pakistan imports 80 to 85 per cent of its petroleum through Hormuz. One week into the war, the fuel regulator issued the largest single-day price adjustment in the country's history. After two rounds of government subsidies, petrol and diesel remain roughly 48 and 36 per cent above pre-war levels. Road freight rates rose 22 to 30 per cent between mid-February and late March, with full pass-through to wholesale food prices expected through April and May.

The fertiliser channel is where the damage locks in. Approximately 30 per cent of domestic urea production depends on Qatari LNG, and imports were suspended on 2 March. Of eight scheduled cargoes for March, only two arrived, both vessels already at sea before the war began. One major urea producer, Agritech, shut down on 4 March, was restarted on 13 March after the government reallocated domestic gas, and then shut down again on 6 April when flash flooding damaged a feeder pipeline. The kharif planting window is active now and determines the October and November harvests that feed millions of families.

The exchange rate looks stable. It is not evidence the pressure has eased. The official rate moved less than 0.3 per cent in early-mid April while the oil import bill absorbed a 78 per cent rise in crude. That stability reflects active State Bank management within an IMF programme that formally calls for greater exchange rate flexibility. The current rate posture is a Government of Pakistan policy choice, not an IMF requirement. Informal currency markets are pricing a 4 to 5 per cent premium over the official rate, the clearest signal that demand for dollars is outrunning supply.

The populations most directly exposed are specific. Daily-wage workers in Karachi, Lahore, Faisalabad, Rawalpindi, Multan, and Peshawar have absorbed the full fuel cost increase through informal transport fares. Smallholder farmers in Punjab and Sindh face higher diesel costs for irrigation at the opening of the kharif window. Remittance-dependent households in Khyber Pakhtunkhwa and South Punjab carry the forward risk of a Gulf corridor shock if the conflict persists. The Pakistan Institute of Development Economics projects that a sustained conflict could reduce annual remittances by USD 3 to 4 billion, roughly one per cent of GDP.

The paper includes a recommendation to the IMF to build space for shock-responsive fiscal action into the ongoing programme review. The primary surplus target of 1.6 per cent of GDP constrains the government's room for fuel subsidies, fertiliser support, and social protection top-ups at precisely the moment those tools are most needed.

Myanmar

Myanmar entered this crisis with the least absorption capacity of any country in the series. Five years of civil war. 3.6 million people displaced. A basic food basket already four times its pre-coup level. Unresolved earthquake damage from March 2025. A currency market fractured into four separate tiers.

National average diesel rose more than 160 per cent by end of March, with Yangon at 174 per cent above pre-war and areas including Sittwe and Myitkyina reaching nearly five times pre-crisis levels. Fuel ships reportedly stopped docking in Mon, Kayin, and Tanintharyi. The military regime imposed QR-code rationing, purchase limits, and odd-even vehicle restrictions. By late April, diesel had partially retreated but remained 144 per cent above pre-war baseline. The shock has not passed. It has partially retreated.

Myanmar's agricultural economy is uniquely exposed. The country has mechanised into diesel-dependent farming systems without retaining an animal-traction fallback. If diesel becomes unaffordable or unavailable, the production cycle does not revert to a slower, cheaper mode. It stops. On top of the diesel shock, Myanmar imports 94 per cent of its recorded urea from a single Hormuz-routed supplier, Oman. Farmers whose margins were already at a five-year low face a simultaneous diesel and fertiliser shock at the opening of the summer rice planting window.

The currency fracture compounds everything. Myanmar's foreign exchange market operates across four tiers, official, commercial bank, licensed moneychanger, and the Bybit peer-to-peer market, with a spread of 100 to 104 per cent between the official rate and the parallel market. That is the widest stratification of any country in the series. Cash transfer beneficiaries, importers of medicine and cooking oil, and small businesses are all exposed to the gap between the rate at which they receive funds and the rate at which they transact.

The food basket is already moving. The basic food price rose 19 per cent between late February and end of March. Salt, produced domestically with limited import exposure, rose 17.6 per cent month-on-month. That is a fuel-to-food transmission signal: transport and distribution costs, not import prices, are driving the rise.

The humanitarian response is 30.4 per cent funded against a requirement that was already scaled back 36 per cent from 2025. Per-person aid stands at USD 16.69. A single donor, the United States, accounts for 52 per cent of all funding received, the highest single-donor concentration in the series.

Lebanon

Lebanon is absorbing the Middle East war economic shock on top of a concurrent Israeli military campaign on its own soil. Hezbollah resumed strikes on 2 March, triggering 46 days of Israeli air and ground operations that displaced more than a million people, destroyed eight Litani River bridges, and established Israeli forces approximately ten kilometres inside Lebanese territory.

The fuel shock passed through cleanly and immediately. Gasoline up 30 to 45 per cent. Diesel up 57 to 64 per cent. No domestic production. No subsidy mechanism. No price band. Private importers pass global prices to the pump within days. Electricite du Liban covers only 17 per cent of national electricity demand. The remaining 83 per cent comes from private diesel generators, which means every rise in diesel prices lands directly on household electricity costs. Generator subscriptions in Beirut now run USD 150 to 250 per month, equivalent to 27 to 45 per cent of median household income.

Lebanon's currency peg has held, but that changes how the shock transmits rather than reducing it. The Lebanese pound at 89,500 per USD is stable. The parallel market premium is under one per cent. But because the economy is dollarised, households absorb the full global price move directly in USD retail prices with no exchange rate buffer. Humanitarian transfer values erode through rising costs rather than a weakening currency.

Food prices are following fuel on a lag. Imported beef rose 50 to 80 per cent. Vegetable oil rose 3.5 per cent month-on-month in March, the largest single monthly move in six months. The IPC-4 emergency population almost tripled from 22,497 to 63,079 between November 2025 and April 2026, though the Middle East war and the Israeli campaign cannot be separated as drivers.

Lebanon's port disruption is real but it is not a Hormuz chokepoint story. Imports route through the Mediterranean and Suez, which has remained open. The likely cause is carrier risk-repricing on Beirut and Tripoli port calls driven by regional war risk and direct Israeli operations. Cargo calls fell 25 per cent between February and March. Tanker calls dropped 67 per cent. Fuel stocks cover approximately two weeks of demand.

The humanitarian response is 38 per cent funded at end of April against a USD 308 million requirement. The Syria Regional Refugee and Resilience Plan is 2.2 per cent funded, a separate signal of donor fatigue that the Middle East war has done nothing to reverse.

The largest forward risk is the Gulf remittance corridor. Lebanon receives an estimated USD 7.15 billion in remittances annually, equivalent to 30 to 35 per cent of GDP, with roughly half originating in Gulf states. That inflow has been Lebanon's primary dollar-liquidity channel since the banking collapse. A sustained Gulf economic slowdown would compress it at the worst possible moment.

What connects them

Three things showed up consistently across the papers.

Currency stability can hide the pressure rather than prove it has eased. In Pakistan, the managed exchange rate conceals a 4 to 5 per cent informal premium. In Myanmar, the official rate sits at half the parallel market. In Lebanon, the peg holds while dollarised retail prices absorb the full global move. In each case, looking at the exchange rate and concluding "no currency shock" would be wrong.

The shock is sharpest where it is least reported. Informal transport fares in Karachi. Generator subscriptions in Beirut. Diesel at five times pre-crisis levels in Myitkyina. Salt prices in Myanmar as a proxy for fuel-to-food transmission. The people absorbing these costs never see a shipping lane.

The most exposed households are specific and identifiable. Daily-wage workers in Pakistan's major cities. Smallholder rice producers in Ayeyarwady and Bago. Displaced Lebanese households in the Bekaa Valley dependent on generator power. Knowing who they are means a response can be specific too, if the analysis reaches the people who design it.

What this work is and where it goes next

I have continued producing situation updates for clients. The two I published last week extend the eight-channel framework through 22 May, including a restart scenario and a trigger board for operational planners. If you read "The System Is Inside the Crisis" in this newsletter last month, the country papers are the evidence base underneath it. If you read the situation updates, the country papers are where the methodology was built.

The method underlying all of this, structured AI-assisted research, cross-referencing across fragmented sources, verification discipline, editorial judgement applied at speed, is what I teach through AidGPT. I wrote last week about how the same approach works on a completely different problem ("I asked AI about my great-grandfather's war. It found my great-grandmother's."). The tools are the same. The databases change. The discipline of following the evidence beyond the original question is what connects a family history in Clare to a fertiliser crisis in Punjab.

The June AidGPT cohort is now full and underway. The next open cohort starts 7 July. Details at aidgpt.org

Full series: mercycorps.org/research-resources/hormuz-to-hunger

Tom

This is the ninth instalment in a series on the economic transmission of the Iran war. Earlier pieces: "The Strait Stays Closed" (March 2026), "The Jet Fuel Cliff" (April 2026), "Seven Propositions for the Next Eighteen Months" (April 2026), "The System Is Inside the Crisis" (May 2026). All are on the newsletter archive.