Just focusing on crude oil? Another "victim" of the US-Iran conflict could trigger global food inflation

As the conflict between the U.S. and Iran continues and shipping through the Strait of Hormuz is disrupted, the damage is not limited to crude oil trade. The circulation of key fertilizer products has nearly come to a halt, causing prices to soar. This could lead to another severe blow to inflation, pushing up global food prices.

Joseph Brusuela, Chief Economist and Head of RSM US LLP, said, “Rising fertilizer costs will definitely lead to higher supermarket prices in the U.S.”

The United Nations estimates that about one-third of global maritime fertilizer trade—around 16 million tons—will need to pass through the Strait of Hormuz in 2024.

Rising Fertilizer Prices Could Trigger Food Inflation

Industry experts warn that increases in the prices of key agricultural inputs like fertilizers could put significant inflationary pressure on the U.S. economy.

Chemicals essential for global agriculture, such as urea, ammonia, sulfur, nitrogen fertilizers, and phosphates, have seen prices soar since the outbreak of war, coinciding with the spring planting season. Farmers rely on these fertilizers to grow corn, wheat, cotton, and other major crops.

The disruption of fertilizer trade in the Middle East affects different economies to varying degrees. The UN warns that the poorest countries face the greatest risks. While the U.S. has a lower dependency on fertilizers from the region compared to other markets, domestic prices are closely linked to global supply dynamics, so the U.S. remains significantly impacted.

The Fertilizer Institute, a major industry organization in the U.S., explains that nearly 50% of urea and sulfur, as well as 20% of natural gas (a raw material for nitrogen fertilizers), pass through the Strait of Hormuz.

Additionally, ammonia and phosphates are other chemicals that could be affected by price shocks, potentially harming American farmers and leading to higher consumer food prices.

The chart below shows the surge in urea prices since the war broke out at the end of February.

However, analysts note that supermarket food prices tend to lag behind fertilizer supply disruptions, meaning inflationary pressures may not be reflected in economic data for several months.

Industry Leaders Urge Trump to Intervene

The American Farm Bureau Federation (AFBF), a nationwide advocacy organization for the U.S. agricultural industry, has called on President Donald Trump to intervene to prevent a food supply shock.

“If the supply of critical agricultural inputs is not prioritized… the U.S. risks crop shortages. This not only threatens our food security and national security but could also exacerbate inflationary pressures in the U.S. economy,” AFBF President Zippy Duvall wrote in a letter to Trump.

The AFBF states, “These supply chain disruptions are expected to further drive up already record-high input prices, at a time when farm profits are already very thin, and many farmers are struggling financially.”

Duvall explained that amid rising energy prices, disruptions in fertilizer supply are particularly difficult to control.

J.P. Morgan Senior Economist José Torres said, “Farmers will raise prices on their products, which will directly impact households, leading to higher prices at supermarkets and restaurants.”

Easing Tensions Could Help Stabilize Prices

Torres further stated that resolving the conflict with Iran quickly would reduce uncertainty and help stabilize fertilizer prices, thereby lowering inflation risks.

Investors have already seen that even minor changes in Strait shipping can impact the markets. Contradictory statements from the Trump administration regarding naval escort of oil tankers through the strait have intensified the sharp volatility in oil prices on Tuesday.

Analysts point out that because consumers are especially concerned about food affordability, the potential risk of food inflation could also impact the U.S. economy, and this is expected to be a key issue in the upcoming midterm elections.

(Source: Cailian News)