"Global food prices could rise" - Study, Iran conflict is disrupting the fertilizer supply chain
The war in Iran could push up global food prices as the conflict disrupts shipments of chemical fertilizers through one of the world's most critical trade routes. While energy markets have focused on oil supply risks, analysts say threats to chemical fertilizer supply chains through the Strait of Hormuz could also cause long-term economic problems through food inflation.
"Beyond energy, another risk that is receiving less attention is the potential negative effect on food prices, as fertilizer shortages increase agricultural costs," a study by Wolfe Research highlighted.
The study estimates that this situation could increase “food at home” inflation by about 2 percentage points, adding about 0.15 percentage points to overall U.S. inflation, in addition to the roughly 0.40 percentage point increase from energy. These potential price increases come at a time when U.S. consumers are facing a sustained period of higher prices for food, housing, and energy.
More than a third of the chemical fertilizers traded globally pass through the Strait of Hormuz, making it a critical artery for agricultural supply chains. Trade traffic through the route has largely ground to a halt since the war began late last month, disrupting shipments just as farmers across the Northern Hemisphere prepare fields for spring planting.
Timing is critical because fertilizers are applied early in the crop cycle and help determine yields later in the year. Between the weeks ending February 27 and March 6, which include the start of the war, the price per short ton of U.S. urea fertilizer imports rose 30%.
Nitrogen-based urea — widely used to increase crop yields — is one of the most widely traded chemical fertilizers circulating in the region.
The US relies on global fertilizer markets, importing approximately 20% of its total usage, although nitrogen fertilizers such as urea come from a wider group of suppliers, including Canada, Trinidad and Tobago, Russia, and other countries.
The impact could extend across the world and beyond commodities. Asia and Africa are particularly dependent on fertilizer exports from the Gulf region. Countries such as India rely heavily on Gulf supplies, while some African economies depend on imported materials used to make fertilizers.
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