S&P Global Warns Hormuz Energy Shock Could Become a Global Food Crisis

The ongoing energy crisis is morphing into a global food security dilemma. Conflict between major world powers, notably Russia's war in Ukraine and the United States and Israel's conflict with Iran, is creating geopolitical tremors across vital trade routes and threatening essential commodities, including oil, gas, grain, and fertilizer.

S&P Global Institute's recent thought leadership report warns of a "multidirectional squeeze" on world agriculture. Rising global food prices stem from two factors: diesel's role as a vital input for farmers, and a potential shift in farm acreage to biofuel feedstock production. Prior to the US-Israel military operation in Iran in February, half of global fertilizer feedstock exports passed through the Strait of Hormuz.

Fertilizer components like urea, ammonia, sulfur, hydrogen, natural gas, and nitrogen are crucial for modern food production, especially for staple crops such as corn, wheat, and rice. The Strait's closure in late February caused fertilizer prices to surge dramatically, nearly doubling their previous rates. Six months after the Strait's reopening, the threat of hunger persists.

The United Nations' Jorge Moreira da Silva warned that the closure could push 45 million more people into hunger. However, the Strait's control remains contentious, and even with agreements, fertilizer production will take months or years to recover. The International Monetary Fund projects a 10% increase in fertilizer prices by year-end, contributing to a 5% rise in food costs by 2026 and an additional 2.4% in 2027.

The poorest nations will bear the brunt of these soaring energy and fertilizer costs, which disproportionately impact household spending. The S&P Global report concludes that the risk of a global food crisis is rising, particularly for low-income countries where food costs account for half of household expenses. While a global food crisis is not inevitable, the pressure on cash-strapped consumers poses grave consequences for the global poor, potentially leading to more conflict.

Historically, food price shocks and food staple price inflation have driven conflicts, as seen in the Arab Spring. The combination of food inflation and rising hunger rates in an already volatile geopolitical landscape could exacerbate tensions and spark civil unrest in the near future.