Persian Gulf Conflict: Threat to Global Food Production & Fertilizer Supply

The escalating conflict in the Middle East is posing a significant threat to global food production, with disruptions to fertilizer supplies emerging as a key concern. The effective closure of the Strait of Hormuz, a critical waterway for global trade, is at the heart of the issue, impacting the transport of essential raw materials for fertilizer production.

Between a quarter and a third of the global trade in fertilizer raw materials transits the Strait of Hormuz, alongside approximately a fifth of the world’s seaborne crude oil and gas. Passage through the strait has largely halted since the recent attacks by the US and Israel on Iran. This disruption is already affecting the transport of ammonia and nitrogen, both crucial components in synthetic fertilizer products.

The ramifications extend far beyond immediate shipping concerns. Roughly half of global food production relies on synthetic nitrogen, and without adequate fertilizer, crop yields are expected to decline. This anticipated shortfall will likely translate into higher prices for staple foods like bread, pasta, and potatoes, as well as increased costs for animal feed, impacting the entire food chain.

The Gulf region itself is a major hub for fertilizer manufacturing. Prolonged transport shutdowns could disrupt production at these facilities and further drive up costs. Iran, the fourth-largest global exporter of urea – the most widely used nitrogen fertilizer – is directly affected, but the impact is global. The availability of raw materials and the rising cost of energy are compounding the challenges faced by fertilizer producers.

Fossil gas represents a substantial portion – between 60% and 80% – of the production cost of nitrogen fertilizer. Recent shutdowns of fossil gas plants in the Gulf, including Qatar’s largest facility following a drone attack, are exacerbating the supply squeeze. This situation is creating a ‘big burden for farmers’ as they face increased input costs and uncertainty about future availability.

The current crisis is not occurring in isolation. The war in Ukraine previously disrupted fertilizer markets, and the situation in the Middle East represents a new layer of complexity. Maritime insurance costs in the region have already become prohibitive due to ongoing threats from drone and rocket strikes, further discouraging shipping activity.

The long-term consequences of sustained disruption to fertilizer supplies are substantial. Reduced crop yields could lead to food insecurity in vulnerable regions, potentially triggering social and political instability. While the immediate focus is on fertilizer, the broader implications for global trade and energy markets are also significant.

Analysts are closely monitoring the situation, but the duration of the Strait of Hormuz closure remains uncertain. The de facto closure is already impacting global supply chains, and a prolonged disruption could have severe consequences for food security worldwide. The situation highlights the interconnectedness of global markets and the vulnerability of food production to geopolitical events.

The fertilizer supply chain disruption is occurring at a time when global food demand is already high, driven by population growth and changing dietary patterns. The combination of these factors creates a challenging environment for food producers and consumers alike. The ability to mitigate the impact of the crisis will depend on a range of factors, including the restoration of shipping lanes, the diversification of fertilizer supply sources, and the development of more efficient fertilizer technologies.

The situation also underscores the importance of energy security. The high reliance on fossil gas for fertilizer production highlights the need for investment in alternative energy sources and more sustainable fertilizer production methods. Reducing the carbon footprint of fertilizer production is not only environmentally beneficial but also enhances the resilience of the food system to energy price shocks.

The current crisis serves as a stark reminder of the fragility of the global food system and the potential for geopolitical events to have far-reaching consequences. Addressing the challenges requires a coordinated international response, focused on ensuring the availability and affordability of essential agricultural inputs.