The Impact of the US-Iran Conflict on Cocoa- Part 1

Introduction 

At the end of February, the US and Israeli militaries launched Operation Epic Fury, a joint attack against the Iranian regime.  

This has involved extensive airstrikes, the destruction of the Iranian Leadership and retaliatory strikes against the US, Israel and their Arabian allies in the region. More significantly for the global economy, Iran has closed the strait of Hormuz, and the US has blockaded Iranian ports. 

Due to its extreme importance to the global economy, the disruption to commerce in the Middle East has led to a myriad of different impacts, ranging from higher oil prices to stock market crashes and extreme volatility across commodities. Despite this volatility, cocoa has remained uncharacteristically quiet. 

In this article, we will look at the main impacts of the US-Iran war so far, how those have been impacting cocoa markets and why the cocoa market has remained stable despite global volatility. 

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Risk Aversion 

The first key impact to watch is how conflicts (in general) shift investor risk perception, pushing them away from volatile markets like cocoa, while toward safer assets like dollar and gold. 

This is called “risk-off” mode, as investors cut exposure to volatile assets and shift into cash. For those who know the cocoa markets, there could hardly be a better example of a “volatile asset.” 

Therefore, cocoa futures are among the markets most likely to suffer from this initial wave of selling as funds liquidate positions. This tends to be bearish in the immediate short term, especially in a market where speculative money already plays a meaningful role in price formation. 

The Mighty Dollar 

The USD is one of the main beneficiaries when geopolitical risks trigger a risk-off environment. 

As fear takes hold of the markets, investors move away from anything they see as risky or volatile, it also pushes them to look for sources of safety. For the last 80 years, the definition of safety in financial markets has had a very clear name: the US dollar. 

Usually, we see this movement when looking at indices such as the DXY, which tracks the USD exchange rate against foreign currencies. It was clearly felt during the beginning of Operation Epic Fury, as the DXY index rose above 100 points for the first time since November 2025. 

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The impact of this flight to safety is not limited to currencies alone. Rather, the dollar’s appreciation means that it also gains strength against everything else, including goods and services. Saying that a ton of cocoa is worth $3,000 in the futures markets is the same as saying that one dollar is worth 1/3000 tons of cocoa.  

Therefore, a price increase in the USD would mean a change from 1/3000 tons to 1/2900 tons, for example. In other words, the price of a ton of cocoa fell from $3,000 to $2,900. 

Considering that currencies are also traded in futures markets, their movements are among the first to be felt whenever a shock occurs. As a result, the same factor that might lead investors to stay away from cocoa leads them to move toward the USD, strengthening it and reducing cocoa prices in relation to it.

Oil Prices and Freight Costs 

Anyone following the markets  (or anyone with a car), knows that a major  market to feel the impact of the US-Israel operation against Iran was oil. Oil prices have been rallying hard since the conflict started, rising over 75% in a matter of days. 

A conflict involving the United States and Iran quickly led to the closure of the Strait of Hormuz, a narrow passage near Iran through which 20% of global oil is transported. Prices responded immediately, with WTI crude rallying from $65 to over $115, its highest level since 2022. 

As the main driver of global trade, such a large disruption in oil supply has a direct impact on almost all markets, including cocoa. When oil prices rise, shipping becomes more expensive because tanker fuel costs increase, and this directly affects the delivered cost of cocoa. 

Even though cocoa is not produced in the Middle East, it depends on the same global freight system, so higher energy prices can raise transportation costs across the board. As a result, it becomes more expensive to transport cocoa to the places where it is consumed, especially considering that the biggest producers (West Africa) and the biggest consumers (Europe and Asia) are far apart. 

Therefore, the oil rally represents a short-term bullish factor for cocoa, as it reduces effective supply by making physical beans harder to deliver to where they are needed.

Shipping Disruption and Insurance Costs 

Second-order effects include the rising costs of logistics / moving cocoa. 

Oil is not the only factor in global trade that was disrupted by the US-Iran war. Alongside higher fuel costs, conflict also makes shipping riskier, pushing insurance premiums upward, especially war-risk coverage, while shipping routes may become less efficient as vessels are rerouted or delayed. 

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Just as higher fuel costs make it more expensive to transport cocoa, the same happens when shipments need to pay more for insurance. As a result, cocoa becomes less available in places where it is demanded but not grown. This is reflected in cocoa prices overall, including futures, and also represents a short-term impact. 

Price Impact 

The US-Iran war proved to be an extreme source of disruption for markets all over the world, but given all the different effects we have seen so far, how have cocoa prices actually reacted? 

Funnily enough, very little. While other commodities, such as cotton, were being tossed around in extreme fashion, cocoa has remained relatively stable for over a month, hovering within the $3,000 - $3,500 range. Although an uptrend was seen immediately after the conflict began, it was relatively mild, at least for cocoa standards, and lost most of its gains soon after, consolidating the current channel. 

This is an even bigger surprise when we compare the current context with how cocoa markets usually behave. Those who have followed cocoa for at least a few years are more used to the intense rallies and drops than they are to the price stability. 

Shocking as it may be, however, the lack of movement in cocoa markets also makes perfect sense when we look deeper into it. Throughout this blog, we saw that some of the impacts created by the conflict were bullish and others were bearish. While other markets like oil or the dollar felt the impacts more clearly on one side or another, in cocoa they more or less canceled each other out. 

Of course, cocoa also has its own drivers, such as fundamentals and weather, that did not disappear just because geopolitics and macroeconomics took a more prominent stage. So, it is also possible that the impact of the war was dwindled by other elements.

Conclusion 

In this article, we examined some short-term effects of the US-Iran war on cocoa markets, ranging from currency volatility to macro disruptions. Despite everything thrown at it, we also saw how the cocoa market remained relatively range bound. 

Although the involved countries have started negotiations and even agreed on a ceasefire, talks so far have been unproductive as the two primary parties were unable to reach a deal. Therefore, it remains unknown for how long the conflict will last, and to what level of intensity it will go. 

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In the second part of this series, we will look at the most relevant medium- and long-term changes the US-Iran war might bring to markets, what effects they are likely to have on prices, and under what circumstances those impacts may actually materialize.