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

*This image is generated by AI

Author | Shi Dalang & Cat Brother

Source | Shi Dalang & Da Mao Finance Pro

These past few days, several major events have occurred that greatly impact our lives.

On March 18, the Federal Reserve announced no interest 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 within the year.”

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

Before the US-Iran conflict, US inflation was already high, with February’s PPI up 0.7% month-over-month, versus an expected 0.3%, and a year-over-year increase of 3.4%, hitting a one-year high.

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

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

It’s hard to say how high inflation in March will go, but it’s likely to hit a new high again.

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

Many might think that, compared to oil, products like fertilizer, which seem more niche, don’t attract the attention of the upper echelons, have low profit margins, and are less motivating for producing countries to divert transportation.

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 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 interest rate cuts.

US stocks plummeted, oil prices continued to rise, and institutions forecast oil prices could reach $120.

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

Not because of food, but because of 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, and 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, and 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, produced by synthesizing hydrogen and nitrogen. Hydrogen mainly comes from natural gas, so rising natural gas prices naturally push up nitrogen fertilizer prices. The entire industry chain is interconnected.

Corn, wheat, rice—main staple foods—have high demand for 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 tight, but South Asia, Southeast Asia, the US, and “big troublemaker” South Korea are more affected.

Qatar’s natural gas supply cut means India’s fertilizer plants may be forced to halt production. India’s rice is at risk, and Thailand mainly imports fertilizer from Iran. To protect rice supplies, Thailand is even considering exchanging food for fertilizer.

The US’s largest crop is corn. 15% of US fertilizer comes from the Middle East, and farmers’ fertilizer expenses have already increased by 40%. 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, and 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 global sulfur prices to rise. As of March 17, sulfur benchmark 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? Globally, 10-15% of oil is used for chemicals, generating about 70,000 types of commercial products.

90% of synthetic polymers, such as fibers used in textiles—“70% of what you wear comes from oil”—and synthetic rubber, which can be used for tires and high-end medical, aerospace applications.

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

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

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

As oil prices soar, downstream products will naturally increase in price.

But as long as the war continues, oil prices won’t really come down, so this round of food and chemical price hikes will be hard to stop.

Author’s note: Personal opinions only, for reference.