The shutdown of the Strait of Hormuz has sent shockwaves through global energy markets, with the world now gripped by fears of oil and gas shortages.
However, if the war lasts, it will impact not only the supply of oil and gas but also trigger a global food shortage.
While the global media is frantically reporting on the first, there is a conspicuous silence on the looming food crisis.
Ironically, one of the worst-hit regions could be the Gulf countries themselves.
The Gulf countries, on the one hand, depend critically on oil exports to sustain their economies and finance massive infrastructure projects; on the other hand, they all depend on imports of food and agricultural goods from the outside world.
The Iran War, now in its third week, has choked both the outflow of oil and gas from the Strait of Hormuz and the inflow of food and agricultural items to the Gulf countries.
However, the looming food crisis will not impact only the Gulf region but will have global repercussions.
The Middle East is also a key region for the global fertilizer supply.
Around one-third of the global seaborne fertilizer trade passes through the Strait of Hormuz, according to the United Nations.
A prolonged closure of the Strait of Hormuz will impact agriculture and food production from Australia to the Americas.
Not Just Oil & Gas: The Looming Fertilizer Crisis
The closure of the Strait of Hormuz has shut off the supply of fertilizers from the Gulf countries to the rest of the world.
The Gulf countries account for roughly one-third of global Urea trade, according to the Carnegie Endowment for International Peace.
QAFCO, Qatar’s state fertilizer company, operates the largest urea production site on Earth, with an annual output of 5.6 million metric tons, or about 14% of global supply.
QAFCO production has been offline since March 4, according to the Wall Street Journal.
Notably, Russia, the second-largest producer of urea, is already facing export constraints due to the war in Ukraine.
In fact, due to these constraints, markets are already repricing urea.
For instance, in the US, urea was priced at US$444 per metric ton in February. By Early March, the prices shot up to US$590.
According to some estimates, it could shoot up to US$800 by May if the Strait of Hormuz remains closed.
Oxford Economics’ Alpine Macro said urea and ammonia prices had surged by around 50% and 20%, respectively, since the war began. Other fertilizers, like potash and sulfur, have also risen in price.
Urea, one of the world’s most widely used fertilizers, is used to grow various crops, including maize, wheat, rapeseed, and some fruits and vegetables.
Gulf countries also produce around 20 percent of phosphate fertilizers and a quarter of global sulfur, which is largely an oil and gas byproduct. Fertilizer producers need sulfur (sulfuric acid, to be precise) to turn phosphate rock into a liquid that plants can absorb.
This bad news comes at a bad time, just before the spring planting season in the Northern Hemisphere. Farmers typically order fertilizer in March to apply in April or May.
Even if the war stops, regular supply lines will not be restored for at least the next six months.
According to Helios AI, a commodity intelligence software company, food prices will rise by 12% to 18% this year and could rise further next year.
Coupled with rising energy and transportation costs, the food prices will remain elevated for at least 18 months.
Rising fertilizer prices could also affect the US agricultural sector, which supports 50 million jobs and over US$10 trillion in output.
Fertilizer Cost Could Impact Trump’s Support Base
Notably, the US agricultural sector is also a key base of support for President Donald Trump.
Fertilizer plays an important role in the US agricultural economy.
“Each year, fertilizer delivers $37 billion in wages, supports half a million jobs, and has an economic impact of $140 billion,” Corey Rosenbusch, CEO of the Fertilizer Institute, said.
While the U.S. produces much of its fertilizer domestically, it relies on imports for 25% of its fertilizer stock, including 18% of its nitrogen use. Qatar and Saudi Arabia were important nitrogen suppliers to the US, but their supplies now remain stranded in the Persian Gulf.
While the fertilizer supply constraints and rising food costs will have a global impact, it will perhaps be felt most acutely in the Gulf region.
The Emerging Food Crisis In the Gulf
Gulf Cooperation Council (GCC) countries import roughly 85% of their total food, driven by arid climates and limited arable land. This high reliance on imports includes approximately 90% of cereals, over 90% of grains, and almost 100% of rice, making the region highly vulnerable to global supply chain shocks.
Furthermore, the region imports 62% of its meat and over 56% of its vegetables.
According to the World Economic Forum (WEF), “the 2022 Global Food Security Index ranks all six GCC countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) – in the top 50 for food security, thanks to their relative wealth and strategic import policies.
“However, they face a food security dilemma: The majority of their food is imported, including staples like rice and cereals, and to a certain extent, meat and vegetables.”
If the Strait of Hormuz remains closed, the GCC countries will be unable to import food.
For instance, industry estimates suggest that nearly 4 lakh tonnes of Indian basmati rice shipments are currently stranded either in transit or at international ports.
The Indian basmati rice is awaiting delivery to GCC countries, but cannot be transported due to the war.
Notably, India is one of the main sources of rice for the region.
For instance, Kuwait imports 92.5% of its rice from India. Similarly, Qatar imports 88.2% of its rice from India, Saudi Arabia (75.3%), the UAE (72.1%), Oman (71.2%), and Iraq (57%).
The inability to transport Indian rice is affecting both GCC countries and Indian markets.
On the one hand, rice prices are rising in the GCC countries; at the same time, due to the failure to export excess rice output, rice prices in India have collapsed.
Pranjal Malani, a businessman associated with the rice trade in India, said the crisis is already creating serious operational challenges for exporters.
“Nearly 4 lakh metric tonnes of basmati are currently stuck at ports or in transit, which has delayed payments and created major financial stress for traders. Container costs that were earlier around $1,800 have now risen to nearly $3,800, adding further pressure on exporters.”
“The situation may worsen because even containers that have reached their destinations are not being picked up by buyers. People are not answering calls, and this is creating a lot of problems for exporters,” he said.
Even if the Strait of Hormuz opens soon, restarting production and transport of fertilizers and their components could take weeks, or even months.
Because of the war, oil and gas prices have already risen steeply; however, rising food and fertilizer prices and a looming global food crisis could affect the most vulnerable segments of our society.
- Sumit Ahlawat has over a decade of experience in news media. He has worked with Press Trust of India, Times Now, Zee News, Economic Times, and Microsoft News. He holds a Master’s Degree in International Media and Modern History from the University of Sheffield, UK.
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- He can be reached at ahlawat.sumit85 (at) gmail.com
