How war in the Middle East can sow hunger in the world

The longer the conflict in the Middle East lasts, the more likely it is that people around the world will pay more for food. And those in the most vulnerable countries could face famine.

The Persian Gulf is an important source of fertilizers. Although the region is best known as a prodigious source of oil and natural gas, its abundance of energy has driven the development of factories that produce the raw materials for many types of fertilizers, especially those that provide nitrogen.

Nitrogen fertilizers are essentially natural gas reconfigured into plant nutrients. They nourish the crops that produce approximately half of the world’s food supply.

For now, most nitrogen fertilizer plants in the Persian Gulf continue producing. But the delivery of these products to farmers suddenly became impossible, due to the effective closure of the Strait of Hormuzthe narrow channel that connects the Gulf to the Indian Ocean.

The disruption of maritime traffic in the strait is the main reason for the rise in oil and gas prices. If the waterway remains closed, prices for essential fertilizers and the chemicals used to make them will increase. This could lead farmers to limit their use, reducing the global food supply and making food less affordable.

Read more: Which Brazilian sectors and assets could be affected by the conflict between the US and Iran?

“It’s bad — there’s no other way to say it,” said Chris Lawson, vice president of market intelligence and pricing at CRU Group, a London-based research and data firm specializing in commodities. “The world relies heavily on fertilizers and associated raw materials supplied by this region.”

War has the power to expose the vulnerabilities that arise from interconnection. Four years ago, when Russia invaded Ukraine, the world learned a painful lesson about the geography of agriculture. Both countries were important producers of wheat and other grains. Soon, bread shortages emerged from West Africa to South Asia.

Russia and Ukraine also produce significant amounts of fertilizer. The prolonged conflict has made these products scarce, driving up prices and prompting farmers to skimp on fertilizer use. The result was reduced harvests.

The recent instability in the Middle East does not affect the grain harvest, but its impacts on the fertilizer sector could be even more profound.

“The volumes are potentially higher this time than in the Russia-Ukraine conflict,” said Sarah Marlow, global fertilizers editor at Argus Media, a commodities-focused news and data service. “There are several producing countries involved.”

Fertilizers can be divided into three basic types that provide specific nutrients to the soil: nitrogen, phosphorus and potassium. Five major fertilizer exporters — Iran, Saudi Arabia, Qatar, the United Arab Emirates and Bahrain — rely heavily on the Strait of Hormuz to export their products.

Collectively, these countries supply more than a third of the world’s trade in urea, the dominant form of nitrogen fertilizer, as well as nearly a quarter of another type, ammonia, according to data compiled by the International Fertilizer Association, a London-based trade group. The same five countries produce almost a fifth of phosphate fertilizers.

One of the main urea suppliers, QatarEnergy, halted production last week after losing access to natural gas following Iranian drone and missile attacks. Other factories continue to produce urea, storing it near ports and waiting for shipments to resume.

“Nobody knows how long this can go on and still have enough space for storage,” said Laura Cross, director of market intelligence at the International Fertilizer Association.

Some see the growing crisis facing agriculture as a warning sign about the over-reliance on a small group of fertilizer producers to meet humanity’s need for calories.

The pandemic has exposed the risks of relying on a single country, China, for basic drug ingredients. The turmoil in the Middle East has highlighted the dangers of relying on the Persian Gulf for oil and gas, leading to discussions about the need for countries to accelerate the deployment of renewable energy sources such as wind and solar. And the crisis in the fertilizer industry serves as a reminder that this same unstable region is vital to the world’s food supply.

“The long-term solution is to not rely on fertilizers that need to be transported across the Strait of Hormuz,” said Raj Patel, a political economist and sustainable food expert at the University of Texas at Austin. “We have become quite dependent on these imports.”

A possible solution, he added, lies in India and Brazil, where governments have encouraged farmers to drastically reduce the application of imported fertilizers, diversifying crops and adding locally available nutrients to the soil.

“More sustainable production is the long-term change we need,” Patel said.

Many experts agree, but Patel’s preferred solution doesn’t solve the immediate problem of how to produce this year’s harvest.

The timing of the crisis is especially worrying for farmers in the Northern Hemisphere, who now face the need to apply fertilizers to crops that will be grown in the spring.

The situation is critical for American agriculture. Tariffs imposed by President Donald Trump had already raised the costs of imported fertilizers, forcing many farmers to postpone their stocks. The White House exempted fertilizers from the latest tariffs last month. But millions of tons of urea cannot be obtained quickly across the world.

India is particularly vulnerable as it traditionally buys around 40% of its urea and phosphate fertilizers from suppliers in the Middle East.

As the world looks to other sources, the most obvious alternative is China. But the Chinese government, seeking to protect its own farmers from the same kind of ongoing geopolitical turmoil, imposed restrictions on fertilizer exports last year.

Traders are already reacting to the threat of a fertilizer supply shock. In the last week, urea sold in Egypt — a widely watched market — rose from about $485 per ton to $665 per ton, or roughly 37%, according to Argus.

That’s a far cry from the $1,000-plus fertilizer prices seen after Russia’s invasion of Ukraine. But the longer Persian Gulf suppliers remain affected, the greater the risk of similar increases.

A continued rise in the cost of fertilizers could force governments in South Asia and sub-Saharan Africa to subsidize the cost of cultivation or otherwise watch food prices rise. This could worsen the debt burden of many low-income countries.

To make matters worse, fertilizers are generally traded in US dollars. The American currency has benefited from its safe haven status since the start of the war, appreciating in value against other currencies. But this makes imported fertilizers and components more expensive in local currencies.

According to a study published last year, farmers in much of Africa were most affected by rising fertilizer prices in 2023.

Globally, rising fertilizer prices could reduce harvests, limit supply and raise food prices.

“The price of food will rise,” said Jan Willem Erisman, a chemical engineer and fertilizer expert at Leiden University in the Netherlands.

Researchers have found that rising food prices often lead to increased malnutrition in poor countries.

Another focus of concern is sulfur, a yellow, powdery substance that is a byproduct of oil and gas refining. Sulfur is transported in bulk on cargo ships to ports around the world and then used to make phosphate fertilizers and metals.

According to the CRU Group, almost half of the world’s sulfur is now on the wrong side of the Strait of Hormuz, effectively trapped there.

Approximately a quarter of this sulfur is destined for China, where it is used to make phosphate fertilizers. A similar portion is sent to Indonesia, both as an ingredient for fertilizer and as an element used in nickel production. African agriculture also relies heavily on sulfur from the Persian Gulf.

Before the war, sulfur supplies were already scarce in much of the world. Given the already high prices, buyers were reluctant to increase their stocks.

Now prices are rising even more.

If sulfur becomes scarce, it will be felt most acutely in Morocco, where factories use it to produce phosphate fertilizers.

“Sulfur is essentially the most exposed commodity,” said CRU Group’s Lawson. “It’s quite surprising the exposure that all these different markets have to sulfur as a feedstock.”