The potential economic impact of the Iran conflict: Rising costs of food

Impact of the Iran Conflict on Global Food and Energy Prices

The conflict unfolding in Iran is affecting more than just oil markets—it’s also threatening the supply of crucial crop fertilizers, which could soon drive up food costs in the United States.

Nearly one-third of the world’s fertilizer components—vital for growing the crops that fill grocery stores—pass through the Strait of Hormuz, a key maritime route along Iran’s southern border. This same narrow passage also handles about 20% of the planet’s oil shipments. Since hostilities involving the U.S. and Israel erupted on February 28, the strait has largely been closed to traffic.

Several cargo vessels have already been targeted by Iranian forces, and there are increasing concerns that sea mines have been placed in the area. In response to these dangers, shipping and oil tanker companies have halted passage, leaving hundreds of tankers stranded just outside the strait.

This disruption has sent oil prices soaring, with U.S. crude surpassing $99 per barrel—a roughly 50% jump since the conflict began. The longer the turmoil continues, the more likely it is that these effects will extend beyond energy markets.

Joe Brusuelas, chief economist at RSM, recently highlighted that the conflict poses a significant but often overlooked threat to the global food supply chain, which relies heavily on exports from this region.

The Middle East’s Role in Fertilizer Production

The Middle East is a major player in the fertilizer industry, primarily because its abundant natural gas reserves are essential for producing ammonia—a key ingredient in nitrogen-based fertilizers like urea. Countries such as Egypt, Iran, Qatar, Saudi Arabia, and the United Arab Emirates, all affected by the conflict, together account for nearly half of global urea exports and about 30% of ammonia exports, according to the American Farm Bureau Federation.

As Farm Bureau economist Faith Parum notes, fertilizer markets are interconnected worldwide, so disruptions in one region can quickly affect prices and availability elsewhere. Any increase in costs or shortages abroad can rapidly impact the global agricultural supply chain, ultimately raising food prices.

Challenges Facing U.S. Farmers

American farmers are already feeling the strain. John Boyd Jr., a fourth-generation farmer in Virginia, shared that his fertilizer supplier recently warned of possible shipment delays. “Dealers are telling me we can’t get the fertilizer,” Boyd told NBC News. “Because of the conflict and bombings in the area, shipments have stalled.”

Fertilizer is critical for crop production and must be applied before planting. Without it, Boyd explained, yields would drop significantly. He anticipates that prices will climb further as supplies become even tighter.

Soaring Fertilizer and Food Prices

As of March 10, ammonia prices in the Middle East had surged 92% compared to the previous year, while urea prices were up 70%, according to Brusuelas. In the U.S., ammonia costs have risen 41% year-over-year, and urea prices are up 21%. Brusuelas summarized: “Rising fertilizer expenses will push up grocery bills for American consumers.”

Food prices are already on the rise. Recent inflation data shows that grocery costs increased by 0.4% from January to February, and are now 2.4% higher than a year ago. Restaurant prices also climbed 0.3% in the same period, up 3.9% year-over-year.

Critical Timing for Agriculture

With planting season underway, any further disruption to fertilizer supplies could put additional pressure on food prices in the coming months. This period is crucial for U.S. farmers, who are now purchasing fertilizer, preparing fields, and applying nutrients for crops like corn and wheat.

Faith Parum emphasized the importance of securing safe passage and insurance for fertilizer shipments through the Strait of Hormuz during this critical time. If farmers cannot obtain the necessary supplies, there could be reductions in planted acreage and lower yields, which would threaten food security and affordability in the U.S.

Government Response and Additional Pressures

Agriculture Secretary Brooke Rollins announced that the Trump administration is close to unveiling measures to help keep fertilizer costs manageable for farmers, though no specifics were provided. She noted that while most farmers have already purchased fertilizer for the season, about a quarter have not, leaving them more vulnerable to price spikes.

Rollins also pointed out that global events are affecting American agriculture beyond just fertilizer. Diesel prices, which impact the operation of tractors, irrigation systems, and fertilizer spreaders, are also climbing. Boyd mentioned that filling his tractor’s 100-gallon tank now costs $469—a burden that adds to his concerns over fertilizer shortages.