S&P Global Warns Hormuz Disruption Risks Food Crisis

The ongoing energy crisis is increasingly impacting global food security, with disruptions in critical trade routes threatening essential commodities including oil, gas, grain, and fertilizer, according to a report published by the S&P Global Institute.

Multidirectional Squeeze on Agriculture

According to the report, a multidirectional squeeze on world agriculture is taking form due to pricier diesel and fertilizer, strong biofuel demand, and El Niño-related weather risks. Diesel serves as an important input cost for farmers, while rising biofuel demand may lead agricultural producers to direct acreage away from food production toward feedstock. Prior to military conflicts involving the United States, Israel, and Iran, half of the world's fertilizer feedstock exports passed through the Strait of Hormuz.

The closure of the Strait to nearly all shipping traffic on February 28 caused fertilizer prices to surge and double their previous levels. The International Monetary Fund projects an overall 10 percent increase in fertilizer prices by the end of the year, contributing to a 5 percent hike in food costs and an additional 2.4 percent increase.

Impact on Low-Income Countries

While the Strait is no longer completely stalled, control of the waterway remains contentious. Fertilizer companies must wait for natural gas production in the Gulf to ramp up to regain feedstock supply, a process expected to take months or years. Low-income countries remain the most exposed, as food costs amount to approximately half of household spending, and rising food inflation historically acts as a key driver of conflict and civil unrest.

Key facts

• S&P Global reported a multidirectional squeeze on world agriculture driven by higher diesel, fertilizer, and biofuel demands.
• The International Monetary Fund projects fertilizer prices to rise 10 percent by the end of the year.
• Rising fertilizer and energy costs are projected to add 5 percent to food costs.
• The Strait of Hormuz previously handled half of the world's fertilizer feedstock exports.