Amid the ongoing US-Israel conflict with Iran, renewed tensions at key maritime chokepoints have once again added pressure on crucial global supply chains. With disruptions at the Strait of Hormuz—the prime maritime link between the Gulf and world economy— the traffic of global oil, liquified natural gas and fertiliser has been severely impacted. According to UNCTAD, about 38% of crude oil, 13% of chemicals such as fertilisers and 2.4% of dry bulk including grains get transported via the Strait of Hormuz. With the rise in natural gas prices, there has been a substantial increase in prices of select nitrogenous fertilisers, which worsens their access especially to least developed countries such as Sudan, Somalia, Tanzania and Mozambique. Data also indicates that Asia remains highly dependent on Gulf fertiliser exports, fuelling widespread risks to agricultural production in the year ahead. As the world’s largest importer of urea and diammonium phosphate (DAP), India is already looking to diversify purchases from countries such as Indonesia, Belarus, Russia and China. With increasing input costs, the risk of double food inflation heightens globally as a result of rising farming costs and supply-side shortage in food production. Any further extension of the conflict bears spillover consequences for global food supply chains and water availability for West Asia, potentially exacerbating food and water insecurity.
The closure of the Strait of Hormuz exposes the fragility of the Middle East’s entrenched dependencies on food imports and singular trade corridors. Although lessons from prior global shocks have led to an uptick in domestic food storage capacities and diversified trade routes, these strategies are not immune to mounting logistical pressures. All GCC States reportedly have built strategic reserves to withstand crises for up to six months. However, not all GCC countries have geographic access to alternative shipping routes for food imports. Saudi Arabia’s access to the Red Sea and Oman’s ports on the Arabian Sea provide partial buffers, but countries without this advantage would need to rely on re-exports from Saudi Arabia or Oman. GCC countries are actively carving alternative sea-road gateways, but these options are unlikely to be sustainable in the long-term, lacking capacity to absorb full trade diversion and already facing bottlenecks. With other food imports rerouted through the Cape of Good Hope, fuel and transport costs surge in tandem, translating to higher food prices down the road.
Water presents another looming point of concern, surfacing through attacks on physical infrastructure and silently embedded within food trade patterns. Recent attacks on desalination facilities in Bahrain and Iran call into question the sustainability of highly centralised water management and distribution strategies, especially since GCC countries rely on desalination for up to 90% of freshwater needs. Beyond kinetic attacks, another concern lies in the long-term implications for virtual water imports. As a water-scarce region, the GCC heavily relies on imports of water-intensive products like meat and cereals from water-abundant nations like Brazil and India. If the conflict ensues beyond grain storage thresholds and encroaches into global harvest seasons, the Gulf risks, at least temporarily, losing a portion of its water budget. With rising global fertiliser prices and heightened climate impacts in producer economies, future crop yields may weaken and key exporters outside of the region may be pressured to halt food exports, as they previously did during the Russia-Ukraine conflict.
The conflict risks creating reverberating effects for its Middle East and North Africa and South Asian (MENASA) neighbours’ food security. If the Gulf chooses to increase its agricultural imports from MENA countries like Morocco, Egypt, Sudan, and Jordan, this would incite higher domestic food inflation, exacerbating previously elevated levels from the Russia-Ukraine War and Covid-19 pandemic. Furthermore, the Gulf is home to migrant workers from India, Bangladesh, and Pakistan, where remittances compose between 3.4 to 9.4% of their national GDP. Even nationals from Egypt, Yemen, and Sudan would be affected, as remittances compose between 7.6-15% of their GDP. Uncertainty in migrant earnings from Gulf workers or the ability to secure work contracts has the potential to reduce income sent home, straining household food security.
The conflict in West Asia has a far-reaching impact on global food and agricultural supply chains. With the food and energy supply chains closely interwoven, energy disruptions through the Strait of Hormuz have led to surges in crude oil prices, fertiliser shortages, and increased logistics costs, thereby fueling inflation and raising retail food prices. High fertiliser costs are likely to have a detrimental impact on farmers worldwide, as they face thin profit margins, often leading them to choose less input-intensive crops. The chokepoint has also led to the falling out of several export deals for agricultural goods across nations. About 400,000 metric tonnes of Indian basmati rice have been held up at ports due to rising freight costs. This largely affects the top five importers of Indian basmati rice, including Saudi Arabia, Iran, Iraq, the UAE, and Yemen. Additionally, about 200 containers of perishable goods from India, such as onions, bananas and grapes, were stranded in ports and holding zones with uncertain outcomes. Similarly, oil price spikes after the conflict have a serious impact on Brazil’s ethanol-sugar demand—driving up prices of the basic food essential. On the other hand, high logistics costs also increase the risk of higher global grain prices and reduced availability, as Brazil remains the largest supplier of corn and soybeans. For Sri Lanka’s tea industry, the conflict has disrupted key shipping consignments of Ceylon tea to the Gulf region, resulting in reduced prices for Sri Lankan farmers. In Australia, oil price surges have raised concerns about food shortages, following farmers’ inability to transport food across the nation. The country faces the risk of “going back to 1940” in terms of rationing to counter food shortages caused during World War II.
For West Asia, the global food supply chain disruption underscores the need to explore multi-origin procurement systems for grains, edible oil and pulses by securing supply chains across South Asia, Europe, East Africa and Latin America. In addition, investing in building last-mile inland distribution systems and dedicated food corridors can improve connectivity to alternative ports. Globally, food security-centric trade agreements must be encouraged to reduce the risk of global food inflation and enable farmers worldwide to fetch fair prices for their produce by expanding market access. The WTO Trade Dialogues on Food concluded that “trade in food is a moral obligation,” underscoring that the multilateral trading system is pivotal to preventing a collapse in global food supplies. Trade Facilitation Agreements in the food sector can address long-standing concerns such as tariff escalation, export bans, and the need for standardised, fast-tracked, and transparent regulations on traceability, quality, and phytosanitary measures, especially during a global crisis. Moreover, FAO proposes a Food Import Financing Facility (FIFF) as an emergency financing mechanism for eligible food-import-dependent countries by providing balance-of-payment support for essential food imports during a global crisis, allowing the countries to keep importing through normal commercial channels.
Commodity market exchanges could further help manage risks for farmers and importers by allowing flexibility, providing symmetric information and avoiding panic selling. A heavy dependence on global supply chains for chemical fertilisers also underscores the need to promote climate-smart agriculture practices. Measures such as nutrient management, regenerative farming, bio-fertilisers and precision farming can help lower the need for chemical fertilisers in the long run. Improving supply-chain infrastructure at nodal trade routes, including storage facilities, digital logistics networks, warehousing, and cold chains, can cushion the impact of geopolitical shocks by extending the shelf life of commodities and enabling real-time tracking and demand forecasting.
This article is authored by Shruti Jain, associate fellow, Centre for Development Studies, Observer Research Foundation and Leigh Mante, junior fellow, Energy and Climate Change Programme, Observer Research Foundation, Middle East.
