A primary focus on the economic and financial implications of the war in Iran has been on the Mideast’s role in the global supply of energy.
A less well-recognized risk, though, is the threat the conflict poses to the global food supply chain, which depends on exports coming through the region.
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About 25% to 30% of global nitrogen fertilizer exports, worth roughly $50 billion over the past five years, move through the Strait of Hormuz, which is effectively closed.
The major exporters are Egypt, Iran, Qatar, Saudi Arabia and the United Arab Emirates.
Disruptions to exports of petroleum-derived products have the potential to have a drastic impact on the global food supply chain.
Take ammonia and urea, the essential ingredients in nitrogen-based fertilizers. Urea alone accounts for one-third of nitrogen fertilizers’ market value. Rising spot prices for urea are quickly transmitted into the supply and the cost of food.
The Asia-Pacific region, in particular, depends on imports of urea, as well as ammonia. Grain producers like India and China also depend on the products.
But the impact will spread to North America as well, compromising the agricultural supply chains across Canada, Mexico and the United States.
The U.S. imports $5 billion in nitrogen fertilizers, with 51% of it coming from Qatar, Mexico imports nearly $750 million and Canada imports around $500 million.
And as with oil and natural gas, ammonia and urea are spiking in price. As of March 10, ammonia in the Mideast is 92% higher than a year ago and the price of urea is 70% higher.
Prices in the U.S. have increased as well, with ammonia price 41% higher than last March and urea 21% higher.
The takeaway
Higher fertilizer costs will certainly contribute to higher prices at U.S. supermarkets.
But perhaps more important for global growth and security, the potential for lower crop yields in less developed nations often results in political instability.
