Is Iran's "choking" causing a "global food crisis" to be imminent?

(Source: Big Cat Finance Pro)

Author | Shi Dalang & Cat Brother

A few major events have happened back-to-back these days, greatly impacting our lives.

On March 18, the Federal Reserve announced no rate cuts.

More importantly, the original expectation was for a rate cut in 2026, but now, more and more officials lean toward “no rate cut this year.”

The main reason is that inflation caused by oil prices is far exceeding expectations.

Before the US-Iran conflict, US inflation was already high. In February, the Producer Price Index (PPI) rose 0.7% month-over-month, with an expected 0.3%, and a year-over-year increase of 3.4%, hitting a one-year high.

That was February, before the war started, with oil prices still in the $60-70 range. Now, oil prices have surpassed $100.

“Inflation can’t be contained, so no rate cuts.”

How high inflation in March will go is still uncertain, but it’s likely to hit a new high again.

For example, fertilizer prices imported into the US have already increased by 30%. The American Farm Bureau Federation has written to Trump, saying the fertilizer crisis has “threatened national security.”

Many might think that, in the face of oil, products like fertilizer, which seem more niche, are not a priority for the upper echelons. Profits are low, and it’s hard to motivate producing countries to shift transportation routes.

But in reality, the impact is huge.

Rising fertilizer prices lead to soaring costs for agricultural products, putting pressure on livestock production, and directly driving food inflation.

This inflation transmission has already begun in the US.

Experts estimate that disruptions in the Strait of Hormuz could increase “household food” inflation by about 2 percentage points, raise overall US inflation by approximately 0.15 percentage points, and energy price increases could add about 0.40 percentage points to inflation.

Basically, during Powell’s tenure, there’s little chance of rate cuts.

US stocks plummeted, oil prices continued to rise, and institutions now expect oil to reach $120.

The Middle East conflict could trigger another global crisis—“dining table crisis.”

It’s not about grain, but fertilizer. As the conflict deepens and the Strait of Hormuz closes, Iran not only blocks oil supplies but also cuts off 33% of global fertilizer trade.

Besides oil and natural gas, the Middle East is also a major producer of fertilizer and raw materials for fertilizer.

“About half of the world’s food production depends on nitrogen fertilizer.”

The largest type of nitrogen fertilizer is urea. Iran is the world’s second-largest urea exporter, with an annual capacity of 13 million tons, accounting for 5.4% of global capacity, supplying 10-15% of global demand.

Currently, the war is ongoing. Besides targeting oil facilities, US and Israeli bombings are also hitting chemical facilities.

Price increases are almost inevitable.

The main raw material for nitrogen fertilizer is ammonia, which is synthesized from hydrogen and nitrogen. Hydrogen mainly comes from natural gas. As natural gas prices rise, nitrogen fertilizer prices will naturally increase, creating a chain reaction.

Major crops like corn, wheat, and rice require large amounts of nitrogen fertilizer. Rising prices will inevitably trigger a new round of food inflation.

China’s nitrogen fertilizer mainly relies on coal rather than oil or natural gas, so it’s less tense. The most strained are South Asia, Southeast Asia, the US, and “big troublemaker” South Korea.

Qatar’s natural gas supply cut means India’s fertilizer plants may be forced to shut down. India’s rice supply is worrying. Thailand mainly imports fertilizer from Iran, and for rice, Thailand is already considering exchanging food for fertilizer.

The US’s largest crop is corn. About 15% of US fertilizer comes from the Middle East. Farmers’ fertilizer expenses have already increased by 40%, and since US corn is mainly used for feed, livestock industries will also be affected.

South Korea’s urea is used not only for agriculture but also for vehicles, logistics, and public services.

The other half of the food supply depends on phosphate, potash, and compound fertilizers.

Gulf countries produce about 20% of the world’s phosphate fertilizer. They also produce another key raw material—sulfur.

Sulfur is a byproduct of oil and natural gas refining. Phosphate fertilizer requires sulfuric acid to dissolve phosphate minerals, and sulfuric acid mainly relies on sulfur. Iran is the world’s largest sulfur exporter, accounting for 30% of global trade.

Iran’s sulfur supply cut has caused sulfur prices worldwide to rise. As of March 17, benchmark sulfur prices increased by 77% year-over-year, and sulfuric acid by 83%.

This also greatly affects us. By 2025, 56% of our sulfur imports will come from the Middle East.

There’s no way around it—rising oil and gas prices have a huge impact.

Besides fertilizer, how many “by-products” can oil and natural gas produce? About 10-15% of global oil is used for chemicals, which can derive approximately 70,000 commercial products.

90% of synthetic polymers, such as fibers, are part of the petrochemical chain. For example, textiles are 70% derived from oil. Synthetic rubber can be used for tires, as well as high-end medical and aerospace applications.

“Industrial MSG” surfactants also come from oil, used in shampoos, laundry detergents, and cosmetics.

In the pharmaceutical industry, over 70% of chemical raw materials for active pharmaceutical ingredients (APIs) are derived from oil.

Other derivatives include pesticides, daily chemicals, dyes, food additives, coatings, paints, and adhesives.

With oil prices soaring, downstream products will also increase in price.

As long as the conflict continues, oil prices will likely stay high, making it difficult to curb the recent surge in food and chemical prices.