Iran Conflict Disrupts Global Fertilizer Supply Chain
The ongoing U.S.-Israeli conflict with Iran threatens global fertilizer supply, driving prices up significantly. This disruption could lead to food shortages in vulnerable regions.
A farmer applies fertilizer to crops in a rice field near Amritsar on July 23, 2024.
Approximately one-third of all fertilizer transported worldwide passes through the Strait of Hormuz, a critical waterway between the Persian Gulf and the Gulf of Oman. Due to the escalating U.S.-Israeli conflict with Iran, shipping traffic has sharply decreased, resulting in rising prices for key commodities such as oil, natural gas, and fertilizers.
According to Noah Gordon, a fellow at the Carnegie Endowment for International Peace, fertilizer prices have surged by around 30 percent in certain regions, which is a significant increase. Countries in the Gulf, including Saudi Arabia, the United Arab Emirates, Kuwait, and Iran, are major producers of fertilizer and supply essential raw materials, such as natural gas and minerals, to other nations for fertilizer production.
Gordon notes that the disruption also affects the supply chain of these critical raw materials. Nations like Pakistan, India, and Brazil depend on these supplies, and some fertilizer plants in India, Bangladesh, and Pakistan have halted production due to soaring natural gas and oil costs.
The global fertilizer supply faced previous disruptions in 2022 following Russia's invasion of Ukraine, prompting countries to seek alternatives like increased imports from the Middle East. However, Máximo Torero, chief economist at the United Nations Food and Agriculture Organization, warns that this time, options are limited. "The loss of Gulf exports creates an immediate global shortfall with no quick substitutes," he states, emphasizing that there are no strategic international fertilizer reserves similar to those for oil.
Countries most affected will include Bangladesh, India, Pakistan, and Sri Lanka in South Asia, along with Sudan, Kenya, and Somalia in East Africa, and Turkey and Jordan in the Middle East. The timing of impact will vary based on regional planting seasons.
In India, concerns are mounting among farmers regarding fertilizer availability and prices as the planting season approaches in June, according to Avinash Kishore, a researcher at the International Food Policy Research Institute. He expresses apprehension about the implications of the ongoing war on future planting seasons.
Additionally, Torero notes that the closure of the Strait of Hormuz and rising oil prices will further complicate food production. "Growing crops requires tractors and machinery that depend on oil, and transporting commodities to markets also necessitates oil," he explains.
The anticipated outcome could be reduced food availability in markets, driving global food prices higher. For instance, rice, a staple in South Asia, is crucial for the region's economy and diet. Torero highlights that food expenses consume nearly half of household budgets in impoverished areas, meaning even minor price increases can have drastic effects.
Kishore warns that a 5 to 10 percent rise in food prices could severely impact hundreds of millions of families, particularly increasing the risk of malnutrition among children.
Farmers in major food-producing nations like Brazil and India are also troubled by the war's negative impact on export markets. Kishore points out that India exports significant quantities of food, including basmati rice and fruits like mangoes and grapes, to Middle Eastern countries, including Iran, which may affect price expectations.
However, if the Strait of Hormuz can be reopened for international shipping soon, Torero suggests the disruption may be temporary, allowing markets to stabilize and food supply issues to be mitigated.
"We hope for a quick market recovery and price stabilization," he concludes.