On Aug. 17, the 60-day memorandum of understanding between the U.S. and Iran expired, taking with it the already fading prospect of an imminent end to the war between them or even a narrower agreement to restore reliable transit through the Strait of Hormuz. Its collapse leaves governments, firms and households around the world exposed to the accumulating effects of the conflict.
Many of the people most exposed to the U.S.-Iran war do not live in either country. Instead, they are farmers unable to afford fertilizer in East Africa, families confronting higher food and transport costs in import-dependent economies, and workers whose jobs depend on tourism, trade or investment. As the conflict disrupts shipping through the Strait of Hormuz, its consequences are becoming a development crisis across the Global South.
Before the war, roughly 18 million barrels per day of crude oil and refined products moved through the strait. That figure fell to 4.8 million barrels per day in July and has averaged about 2 million barrels per day so far in August, marking an almost 89 percent decline from prewar levels, according to Kpler data.
Disrupted transit through Hormuz has also reduced liquefied natural gas supplies, with shipments by Qatar and the United Arab Emirates down by more than 300 million cubic meters per day since March 1, according to the International Energy Agency. Other producers have offset roughly three-quarters of the lost supply, but replacement volumes do not erase the higher costs, logistical bottlenecks and uncertainty facing import-dependent countries.
However, the disruption is no longer confined to energy markets. It is now being felt in fertilizer supplies and trade flows, threatening development gains across vulnerable economies and eroding the fiscal space and resilience that vulnerable countries need to sustain progress toward self-reliance. Countries already dealing with debt burdens, climate shocks and limited foreign-exchange reserves are being forced to absorb a crisis they neither created nor budgeted for.
Food Insecurity
The most direct link between the closure of Hormuz and the household hardship currently being felt around the world runs through food systems. More than 30 percent of global urea trade, along with about 20 percent of ammonia and phosphate trade, normally moves through the Strait of Hormuz, according to the International Energy Agency. As a result of the war, urea prices have climbed from just under $500 per metric ton before the conflict to more than $700 per ton in recent weeks, according to the Institute for Security Studies.
Countries dependent on fertilizer imports are therefore facing a double shock: Farmers are paying more for nutrients as well as for fuel used throughout the production and distribution chain, increasing the cost of planting, irrigation, harvesting, transport and food distribution.
East Africa is particularly exposed. In Kenya, for instance, retail fertilizer prices have reportedly risen by about 27 percent, according to the Africa Policy Research Institute. Farmers may respond by using less fertilizer, cultivating less land or postponing planting. But any of those measures will reduce future yields and push up staple-food prices for consumers.
Ethiopia, which already faces conflict, displacement, climate stress and hunger, illustrates the wider consequences. Nearly 16 million Ethiopians are food insecure, including 5.5 million who are severely food insecure, according to the World Food Programme. The country imports virtually all petroleum products used domestically and a substantial share of the fertilizer on which its agriculture-dependent economy relies. Higher fuel and fertilizer costs will worsen its existing food-security emergency while straining resources available for recovery. And in the long term, more spending on fuel imports, food aid and price support leaves less for health care, education, rural roads, social protection and climate adaptation.
Trade, FDI and Self-Reliance
Pakistan shows how a disruption in Hormuz can become a balance-of-payments problem. Before the war, about 90 percent of its oil and LNG imports moved through the Strait of Hormuz. The country’s largest refiner has now begun buying more U.S. crude to reduce reliance on Gulf routes, but supplies from farther away require longer voyages and cost more to transport.
For Pakistan and other countries with limited foreign-exchange reserves, the burden goes beyond higher fuel bills. More expensive fuel raises import costs and operating costs for domestic firms. Exporters also pay more to reach overseas markets, potentially weakening the foreign-currency earnings needed to pay for energy, food imports and debt obligations.
The Maldives illustrates a different vulnerability: Tourism accounts for nearly 30 percent of the country’s GDP and generates more than 60 percent of foreign-currency earnings. Higher air-travel, fuel, food and import costs could reduce visitor demand, putting a squeeze on hotels, restaurants, boat operators, fisheries and construction firms. A prolonged disruption can quickly affect jobs, household incomes and the country’s ability to pay for essential imports.
The longer the war continues, the less likely vulnerable countries are to achieve greater self-reliance.
But the longer-term danger for all these countries is a slowdown in investment. Power systems, ports, logistics networks and factories require reliable energy, predictable shipping and confidence that costs will not change abruptly. A prolonged conflict in the Gulf makes all three harder to ensure. As a result, investors may delay decisions, demand higher returns or reduce commitments, leaving countries less able to build the infrastructure and productive capacity that can reduce their exposure to future shocks.
Kenya’s development plans, for instance, rely on investment in energy, transport and digital infrastructure, sectors that the World Bank has emphasized will be crucial to sustaining the country’s growth. Volatile fuel supplies, higher shipping costs and increased borrowing costs make these projects more expensive and less attractive, resulting in fewer jobs, weaker tax revenue and slower growth.
Undermining Development Gains
When examined together, these shocks create an alarming cycle. Governments must spend more to cover fuel imports, food assistance, debt payments and currency pressures just as trade becomes less reliable and investment slows. That leaves less money for schools, clinics, roads, social protection and climate adaptation.
Many countries entered this crisis with little financial room to spare. According to UNCTAD, between 2018 and 2024, rising debt-service costs reduced the share of government revenue available for other spending in 99 developing economies (which it defines as broadly comprising the countries of Africa, Latin America and the Caribbean, Asia and Oceania). By September 2025, 49 percent of countries eligible for IMF concessional financing were either in debt distress or at high risk of it, also according to UNCTAD.
That is why the U.S.-Iran war exposes the limits of Washington’s trade-over-aid doctrine. Private investment and expanding trade can help countries reduce their reliance on outside assistance, but only when energy supplies are reliable, shipping routes secure and the investment environment predictable. When conflict destabilizes those conditions, trade cannot substitute for the emergency support needed to help vulnerable countries absorb the shock.
The timing could hardly be worse. The U.N. and the wider humanitarian system are entering this crisis with reduced resources. The U.N.’s regular budget for 2026 was reduced to $3.45 billion from $3.72 billion in 2025, accompanied by job cuts and reductions to political missions. After receiving just $12 billion in humanitarian funding in 2025 (only slightly more than one-quarter of identified needs), the U.N. reduced its 2026 humanitarian appeal to $23 billion, despite estimating that $33 billion would be necessary to assist 135 million people in need, according to Reuters.
U.S. aid cuts have been central to this decline: Between 2024 and 2025, global humanitarian funding fell by more than 30 percent, largely because U.S. support declined from roughly $14 billion to $3.7 billion, according to Refugees International.
Before being dismantled by President Donald Trump’s administration, the U.S. Agency for International Development long worked from the belief that development assistance should make itself less necessary over time. That principle was formalized across four consecutive administrations, Republican and Democratic alike, in frameworks like the Journey to Self-Reliance and, later, Driving Progress Beyond Programs. The goal has traditionally been not to cultivate permanent dependence, but to help local partners, public institutions, and national economies better manage shocks and drive their own development. But self-reliance cannot be built by stepping back precisely when the foundations of economic stability are under strain, as they are across the region and beyond, where countries are absorbing the economic shockwaves of the U.S.-Iran war.
The widening development crisis is not an incidental byproduct of the conflict. It was a foreseeable consequence of the conflict’s impact on the energy, trade and food systems on which vulnerable economies depend. Washington and its partners should therefore respond accordingly to protect humanitarian financing and scale up emergency food, fertilizer and fuel support for the most exposed countries. Above all, they should coordinate measures to ease energy-supply disruptions and preserve the multilateral capacity to prevent economic shocks from fueling political instability and displacement.
If Washington truly values building robust partners rather than perpetuating aid dependence, it must recognize how this war is pushing vulnerable countries in the opposite direction and work actively to counter its effects. Trade and investment remain essential to development, but neither can replace crisis support when the foundations of trade have been destabilized.
The longer the war continues, the less likely vulnerable countries are to achieve greater self-reliance. Instead, they may be pushed toward deeper dependence on debt financing, humanitarian aid and outside support. Failing to contain this development crisis will not only reverse gains already made in poverty reduction, health, education and climate resilience. It will also create the conditions for greater insecurity and require far more costly intervention later.
Jared O. Bell is an adjunct professor at New York University’s Center for Global Affairs, and member of the Crisis and Governance Community of Practice at the Cornell Center on Democracy. He is a former USAID foreign service officer.