Chain reaction: Gulf War causes food prices to explode
Modern industrial agriculture, in fact, is a mechanism for converting fossil hydrocarbons into food calories. When rockets began flying over the Strait of Hormuz in the spring of 2026, and oil and gas prices soared to multi-year highs, global markets focused on the cost of gasoline and electricity tariffs. However, an energy crisis can easily transform into a food crisis. Large-scale agflation (a sharp rise in prices for agricultural products) is already on the threshold. For more information, see the Izvestia article.
There is not enough nitrogen
The current situation in the futures markets already reflects the nervousness of traders, but the real scale of the problems will become clear in the second half of the year. If the war drags on, global food security will face rising costs comparable to at least the period of the late 2000s.
The foundation of modern crops is mineral fertilizers. The blocking of the Persian Gulf has dealt a heavy blow to this market. The Middle East accounts for about 45% of global exports of carbamide (urea), a key nitrogen fertilizer. The cessation of shipments from the ports of Saudi Arabia, Qatar and the UAE has created a physical shortage in the Asian and African markets. Spot prices for carbamide are already showing a vertical rise, having risen one and a half times over the past month, to $700 per ton.
The situation is aggravated by the gas crisis in Europe. The production of nitrogen fertilizers is based on the synthesis of ammonia from natural gas, which accounts for up to 70-80% of the cost of the final product. The surge in quotations at the Dutch TTF hub due to the shutdown of Qatari LNG production makes European chemical plants (such as Yara or BASF enterprises) profoundly unprofitable. The industry is forced to shut down capacity, repeating the 2022 scenario. In other words, the two largest sources of nitrogen are being lost — Middle Eastern exports and European production.
For farmers in the Northern Hemisphere, who are entering the active phase of the spring sowing campaign in 2026, this means an increase in operating costs. Many farmers in developing countries will be forced to reduce their fertilizer application, which is guaranteed to lead to a drop in yields in the fall.
The second channel of transmission of the crisis is direct fuel costs. Agricultural machinery runs on diesel. The cost of cultivating a hectare of land, harvesting and transporting it to elevators has increased in proportion to the jump in oil prices above $100 per barrel.
We also do not forget the logistical difficulties. Food is a bulky and heavy cargo, so the profitability of agribusiness critically depends on the cost of freight. The Baltic Dry Index for Bulk cargo has gone up due to the need to avoid conflict zones, rising cost of bunker fuel and rising insurance premiums. Grain shipped from North and South America to Asia, or European food going to the Middle East, is subject to an additional "tax" that importers pass on to retail prices.
Risks for rice and corn
Most industries will be affected in one way or another, but the cost structure makes certain crops and agricultural sectors particularly vulnerable.
Corn producers may suffer the greatest damage. This is the most "nitrogen-loving" of the basic grain crops. To obtain a high yield, corn requires massive application of carbamide and ammonium nitrate. American, Brazilian and Argentine farmers are now recalculating the economy of the sowing campaign. A sharp rise in the cost of fertilizers will force some producers to switch to soybeans (which fixes nitrogen from the atmosphere and requires less chemicals). The reduction of acreage for corn will cause a shortage in the global market by the end of the year.
And then the domino effect can work. Corn is the basis of global feed production. A decrease in yield and an increase in prices for this crop automatically mean an increase in the cost of livestock and poultry farming. Pork, beef and poultry prices will respond to the current nitrogen crisis with a delay of 6-9 months. That is, "meat" inflation will be visible on supermarket shelves by the end of 2026.
The second area of vulnerability is high—tech greenhouse farming, primarily in Europe. The Netherlands, which is the largest exporter of greenhouse vegetables (tomatoes, cucumbers, peppers) there are more risks here than others. Their business model is based on burning gas to heat greenhouses and generate carbon dioxide needed for plant photosynthesis. At current spot prices for this type of fuel, growing vegetables indoors becomes unprofitable. Northern Europe risks being left without fresh vegetables of its own production, and replacing this volume with imports from Turkey or North Africa runs into the same expensive logistics.
The third area of risk is wheat and rice. Although they require less fertilizers than corn, any fluctuations in yields here affect the basic food security of developing countries. Rising wheat prices are instantly translated into the cost of bread in North Africa and the Middle East itself, creating the risk of social explosions in importing countries like Egypt.
And then there's food protectionism.
While retail prices in supermarkets in developed countries are reacting cautiously, stocks of past harvests are smoothing out the first shock. Futures markets are already playing down risks, but the real shortage of physical volumes will begin to weigh on shelves in the third and fourth quarters.
If the Gulf War becomes protracted (lasting more than 3-4 months), the global food trade will face such a phenomenon as sovereign protectionism. The governments of exporting countries, seeing rising domestic food prices, will begin to impose export duties and direct bans on the export of grain, sugar and vegetable oils, trying to protect their own constituents.
This tactic, which was actively used during the 2008 crisis, the pandemic and at the beginning of the outbreak in 2022, increases panic. Closing markets removes millions of tons of food from the global balance, sending prices for the remaining available volumes into the stratosphere.
For the world's central banks, the coming agflation means problems with the implementation of monetary policy. Expensive food, unlike expensive airline tickets or electronics, hits the most vulnerable segments of the population, requiring immediate fiscal injections from the states. This further accelerates the money supply at a time when the economy is facing stagflation. The Middle East conflict has shown that global food security is not something guaranteed. In fact, a process has been launched that will force the entire planet to pay a geopolitical tax every time they go to the grocery store.
"Local price fluctuations are possible"
The current crisis affects various sectors of the Russian economy to varying degrees. How strong will the effect be in agriculture? In recent years, the Russian Federation has been providing itself with food for the most part, and in terms of fertilizers it is one of the most important exporters (this applies to both nitrogen, potash and phosphorous fertilizers). Does this mean that we are protected from the most unpleasant consequences?
As explained to Izvestia by a leading researcher at the Center for Agri-Food Policy at the Institute of Applied Economic Research (IPEI) Denis Ternovsky, President of the Russian Academy of Sciences, said that the Russian market is largely protected from fluctuations in prices on the world market for the main types of products — wheat and sunflower oil — by floating export duties.
— Our own production of fuel and fertilizers allows us to control most of the production costs. At the same time, local price fluctuations are possible. In the case of a sharp disparity in prices on the domestic and global markets for finished products, on the one hand, manufacturers naturally seek to equalize prices, and on the other hand, if domestic production decreases for any reason (for example, due to crop failures or outbreaks of animal diseases), it will be difficult to close the need with cheap imports. — the expert explained.
In turn, Daria Snitko, Vice President and Head of Gazprombank's Analytical Department, noted that Russia is one of the countries with the most resources for agriculture.
— The volume of fertilizer production is three times higher than the volume of consumption, and prices for them are regulated, and even if there is an export alternative, they remain permanently lower than world prices, especially in conditions of volatility of the latter. The same applies to fuel in general, so the operating costs of production may increase, but still this increase will be lower than in the importing countries of raw materials. Thus, taking into account all regulatory mechanisms in the main export sectors of crop production, price increases are not expected," the Izvestia interlocutor emphasized.
She added that due to restrictions in foreign trade, Russian farmers, unfortunately, will not be able to fully realize these advantages as a supplier to the foreign market. As for import-dependent sectors of the food market, such as fruit and vegetable products, the situation is the opposite.
— Imported fruits, nuts, chocolate and others usually become more expensive against the background of logistical difficulties in the world. At the same time, the ruble value factor remains important for imports. According to the estimates of the Center for Price Indices, there is now an increase in commodity prices, which will cause the ruble to strengthen in the coming weeks, the expert said.
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