UAE grocery prices to rise further as fuel costs climb amid US-Iran tensions

Dubai: UAE residents are paying more at the pump, and retailers are warning that higher fuel costs will lead to larger grocery bills if current geopolitical tensions continue to disrupt regional trade and energy markets.

Major supermarkets and food distributors have come under mounting pressure since the outbreak of conflict across the Middle East, with supply chains facing challenges from higher freight costs, longer shipping routes and rising fuel prices linked to the crisis.

Retailers have spent weeks reworking procurement and logistics strategies to shield consumers from immediate price increases. Yet industry executives say some categories are becoming increasingly difficult to protect from mounting cost pressures.

"Fuel prices do have a direct impact on the overall supply chain, especially in the food and grocery sector where transportation and logistics play a critical role," said Dr. Dhananjay Datar, Chairman and Managing Director of Al Adil Trading.

The warning comes as inflationary pressures intensify across Dubai, where consumers are already feeling the effects of rising transportation and food costs.

Transport costs ripple through

The latest fuel price increases are feeding into nearly every stage of the food distribution network, from imports arriving at ports to refrigerated trucks delivering fresh produce to supermarket shelves.

Products that rely heavily on transportation, cold-chain logistics and imports are expected to face the greatest pressure. According to Al Adil Trading, categories most exposed to rising costs include:

• Fresh fruits and vegetables

• Dairy products

• Frozen foods

• Imported FMCG products

Beyond transportation, retailers are also facing higher packaging, warehousing and distribution expenses. "Packaging and distribution costs have also gone up, which eventually impacts retail pricing," Datar said.

The impact is particularly significant for food retailers because many grocery products move through multiple transportation stages before reaching consumers. Even modest increases in fuel prices can accumulate across the supply chain.

Food inflation concerns grow

The concerns are emerging against a backdrop of rising global food prices. The UN Food and Agriculture Organization (FAO) reported that world food commodity prices rose for a third consecutive month, citing elevated energy costs and disruptions linked to the conflict.

The average price of food was up 1.6 per cent from March and 2 per cent higher than a year earlier, the FAO Food Price Index showed. Vegetable oil prices recorded one of the sharpest increases, climbing 5.9 per cent month-on-month to their highest level since July 2022. The increase reflected higher prices for palm, soy, sunflower and rapeseed oils.

"Vegetable oil prices rose due to stronger demand from the biofuel sector and elevated energy prices," said FAO Chief Economist Maximo Torero. “Nonetheless, localized food production challenges, transport disruptions and trade tensions continue to pose risks to food security.”

The agency also reported increases in wheat, maize and rice prices, with higher crude oil prices contributing to increased production and transportation costs in exporting countries.

While dairy and sugar prices moved lower globally, meat prices continued to rise, with the FAO Meat Price Index reaching a record high in April.

Fuel spike raises inflation risks

The latest food-price concerns are closely linked to developments in energy markets. The conflict involving Iran, Israel and the United States has pushed oil prices sharply higher at various points, raising concerns about the cost of energy-intensive industries and transportation networks worldwide.

Higher oil prices affect far more than fuel stations. They increase shipping expenses, trucking costs, refrigeration costs and agricultural production expenses, creating inflationary pressure throughout food supply chains.

Economists have repeatedly warned that prolonged disruptions around the Strait of Hormuz, one of the world's most critical energy transit routes, could have significant consequences for food prices globally.

Dubai inflation accelerates

The effects are already becoming visible in inflation data. Dubai's annual inflation rate accelerated to 4.8 per cent in April, up from 3.8 per cent in March, according to Dubai Data and Statistics Establishment figures.

On a monthly basis, consumer prices rose 1.3 per cent in April, compared with 0.9 per cent in March. Transport costs were the largest contributor to the increase. The transport category, which accounts for nearly 12 per cent of Dubai's consumer price basket, rose 11.1 per cent year-on-year and 9.2 per cent month-on-month as higher fuel and freight costs filtered through the economy.

Food prices also increased by 1.5 per cent month-on-month, according to Emirates NBD, reflecting higher shipping and transportation expenses linked to the regional conflict. Restaurants and hotels recorded a 1 per cent monthly increase, while insurance costs edged up 0.4 per cent.

Analysts said the inflationary impact of the conflict has been most visible in sectors dependent on oil prices and shipping routes through the Strait of Hormuz. For consumers, higher grocery bills and fuel costs have become some of the clearest signs of those pressures filtering into everyday spending.

Recent purchasing managers' surveys cited by Emirates NBD suggest that businesses are increasingly passing higher operating costs to consumers through higher selling prices, broadening inflationary pressures across the economy.

Grocery prices to rise further

Against this backdrop, retailers expect food prices to continue facing upward pressure if fuel costs remain elevated. "The increase may not be drastic immediately, but grocery prices could gradually rise by around 3 to 8 per cent if fuel prices continue to remain high over a sustained period," Datar said.

The scale of any increase will vary by product category, import dependency and supply-chain exposure. Fresh produce, imported foods and refrigerated products are likely to remain among the most vulnerable categories, while locally sourced products may be relatively insulated from transportation-related cost pressures.

For now, retailers continue to absorb a portion of the higher costs. But if fuel prices remain elevated and regional supply-chain disruptions persist, consumers may increasingly see those pressures reflected on supermarket shelves in the months ahead.

Economists remain cautiously optimistic that inflation will moderate later in the year. Emirates NBD expects Dubai inflation to peak at around 5.4 per cent before easing during the second half as fuel costs stabilise and supply chains gradually normalise.

Until then, higher grocery bills may become another visible consequence of a conflict whose economic effects are reaching far beyond the region's energy markets.

Retailers to shield consumers

Food retailers across the UAE are attempting to absorb part of the additional costs to prevent sudden price increases.

At Al Adil Trading, the company says it is focusing on bulk procurement, efficient inventory planning and logistics optimisation to reduce transportation expenses. Long-standing supplier relationships are also helping the retailer negotiate favourable terms and absorb some of the operational cost increases.

"We are trying our best to cushion customers from the immediate impact through efficient inventory planning, bulk procurement and optimized logistics operations," Datar said. "Our priority is to ensure that essential grocery items remain affordable for consumers."

Such efforts have helped limit the immediate impact on shoppers, though retailers acknowledge that prolonged cost increases become increasingly difficult to absorb indefinitely.