Tehran is moving to restrict – or effectively close – the Strait of Hormuz to shipping, as part of the latest escalation in the war involving Iran.
Markets have reacted to the global impact of this shutdown incredibly busy with shipping channel, with a focus on the risk of oil and gas flowsthe prospect of higher crude oil prices and the inflationary pressures that will follow.
That concern is justified. But it only captures part of the story. A sustained disruption of traffic through the Strait of Hormuz would not only constitute an energy crisis. It will also represent a fertilizer shock (where prices go up dramatically and supply goes down) – and by extension a direct risk for global food security.
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Modern agriculture runs not only on sunlight and soil, but on natural gas. When German chemists Fritz Haber and Carl Bosch developed their nitrogen fixation method in the early 20th century, they did more than just produce ammonia on a large scale.
They launched a global chemical revolution that is still one the cornerstone of modern civilization and agriculture. Through this process, methane is converted into ammonia and ammonia into nitrogen fertilizers such as urea — the most widely used nitrogen fertilizer. These fertilizers allow crops to reach the yields of today global population depends. Without it, harvesting wheat, corn and rice would fall dramatically.
About a third of globally traded urea passes through the Strait of Hormuz. The Persian Gulf sits at the center of this system for two structural reasons. Firstly, it provides access to some of the world’s cheapest natural gas, crucial for ammonia production.
Second, over several decades, huge capital investment has built ammonia and urea capacity in countries in the region, including Qatar, Saudi Arabia and the United Arab Emirates. This is aimed at the export market. A significant share of globally traded nitrogen fertilizer – and the liquefied natural gas (LNG) that powers fertilizer plants elsewhere – must therefore travel through the Strait of Hormuz. A closure of the strait would threaten not only oil and gas exports, but also the physical flow of nitrogen-based fertilizer and what is needed to make it.
The immediate effect will be delays in shipments of ammonia, urea and LNG. They can be stopped altogether or become prohibitively expensive through higher shipping and insurance costs. But the deeper impact will unfold in the months ahead on farms around the world.
In the Northern Hemisphere, fertilizer purchases increase before the planting seasons. A delay of weeks can be disruptive; a break of months can make a big difference. If shipments do not arrive time, farmers faced with difficult choices such as how to pay sharply higher prices, reduce application rates or change crop mixes. Because of how crops respondeven modest reductions in nitrogen use can result in disproportionately large reductions in yield. It can lead to millions of tonnes of lost crops. The consequences will spread through global supply chains to feed markets, livestock production, biofuel and finally the retail prices of foodstuffs.
Don’t countries have their own supplies?
Some countries have supplies of fertilizer, but self-sufficiency is less common than it seems. Indiafor example, relies heavily on LNG imports from the Persian Gulf to power its domestic urea plants. Brazil depends heavily on imported nitrogen and phosphate fertilizers to maintain soybean and corn production.
Self USAone of the world’s largest fertilizer producers, imports significant amounts of ammonia and urea to help meet regional demand and reduce prices. In sub-Saharan Africa, use of fertilizers is already low. A further price increase is likely to reduce use even further, reducing yields and increasing food insecurity.
The fragility of the system extends beyond nitrogen. Sulfur – as an essential nutrient for plant growth — is largely a by-product of processing of oil and gas. If energy shipments through Hormuz are disrupted, sulfur production falls along with fuel exports. So the shock would not only reduce fertilizer shipments, but also limit ways to produce them elsewhere.
Meanwhile, production is off synthetic nitrogen closely connected to the energy markets because it is continuously produced from natural gas. An interruption in the gas supply or the ammonia trade immediately limits global nitrogen availability. Estimates suggest that without synthetic nitrogen, the world could simply feed a fraction of its current population. The Strait of Hormuz therefore sits at the intersection between energy and food security.
Changing where fertilizer is produced cannot happen overnight. Financing and building new ammonia plants takes years. A double-digit decline in exports from a key region cannot be compensated quickly. Meanwhile, prices will rise, trade flows will be diverted and planting decisions will be made under uncertainty. Food price growth, historically correlated with social unrestcan be reinforced.
Central banks, mainly focused on fuel-driven inflation, may underestimate the contribution of fertilizer shortages to prices overall. Crucially, fertilizer shock is not registered with the same immediacy as oil shock. Petrol prices change overnight. The crops appear months later. Nevertheless, the latter may prove to be more destabilizing.
Controlling and closing this narrow maritime bottleneck would transform the cost of living far beyond the Persian Gulf.
If the 20th century taught politicians to fear oil embargoes, the 21st should teach them to fear a fertilizer shock. Energy markets can absorb shocks through reserves and substitution. But the global food system has much thinner buffers. A prolonged disruption at Hormuz would not only reprice crude oil; it would test the resilience of the industrial nitrogen cycle on which modern civilization depends.
Oil drives cars. Nitrogen drives crops. If the Strait of Hormuz closes, the most consequential price may not be Brent oil, but the cost of feeding the world.
This edited article has been republished from The conversation under a Creative Commons license. Read original article.
