Escalating Turmoil in the Strait of Hormuz: Energy Crisis May Escalate into a Global Food Crisis

The ongoing turmoil in the Strait of Hormuz is gradually transforming an energy shock into a potential global food crisis, triggering high vigilance in the global commodity market and related industries.

On April 22, according to relevant media reports, major global commodity trading giants have issued warnings. The current disruption in natural gas supply is continuously reducing fertilizer production. At the same time, the escalating competition for shipping capacity between oil tankers and bulk carriers has significantly pushed up grain transportation costs. However, the market pricing for this potential risk is still seriously insufficient, failing to fully reflect the severity of the crisis.

It is reported that at a commodity summit held in Lausanne, Switzerland, Pablo Galante Escobar, Head of LNG Business at Vitol Group, clearly issued a warning: "We are running out of time." He stated that since the United States and Israel launched strikes against Iran at the end of February this year, about 40% of the decline in global natural gas demand has come from industrial plants, among which fertilizer factories have been the most directly and severely impacted. "This situation is unsustainable — otherwise, the energy crisis will further escalate into a food crisis."

As one of the world's largest agricultural traders, Vijay Chakravarthy, Chief Risk Officer of Louis Dreyfus Company, also expressed concerns. He pointed out that there is a widespread market expectation that "the conflict will end soon," which has led investors to severely underestimate the potential depth of the impact brought by the current situation. "The market has not priced in a longer period of supply chain dislocation, and no one is fully prepared for it," he emphasized, adding that even if the current turbulent situation persists for another six months, it may cause substantial and irreversible impacts on the global agricultural production cycle in 2027.

Key Throat: One Waterway Ties Two Lifelines — Energy and Food

As a core global strategic waterway, the Strait of Hormuz carries about one-fifth of the world's oil and liquefied natural gas (LNG) exports and also undertakes approximately one-third of the world's seaborne fertilizer trade. It is a "lifeline" jointly relied upon by the global energy market and the food production system, and its stability is directly related to global energy and food supply security.

Iran's closure of the Strait of Hormuz and the subsequent U.S. naval blockade of this Gulf choke point have directly led to a significant reduction in global LNG circulation. As a key core raw material for the production of nitrogen fertilizers such as ammonia, the tightening of natural gas supply has directly led to a decline in fertilizer production, which in turn threatens the per unit yield of global crops and will gradually push up global food prices in the coming quarters, triggering a chain reaction.

Chakravarthy further pointed out that supply competition pressure is gradually spreading to other key agricultural input fields. Sulfur, an important raw material for fertilizer production, is currently being largely occupied by high-value-added industrial uses such as copper smelting. Fertilizer producers are at the "end of the line" in the competition for raw materials, a phenomenon that further exacerbates the tight supply of fertilizers and indirectly affects food production.

Capacity Competition: Oil Tankers Squeeze Grain Ships, Freight Rates Soar by 50% to 60%

The shipping disruptions caused by the situation in the Middle East have been widely transmitted to various fields through the global logistics network, exerting a direct impact on grain transportation.

To replace crude oil supplies from the Middle East, Asian buyers have turned to purchasing crude oil from the U.S. Gulf of Mexico in succession. A large number of oil tankers have poured into the Panama Canal, competing with bulk carriers carrying grain and other goods for scarce lock-passing slots, directly leading to the continuous deterioration of congestion in the Panama Canal and a significant decline in shipping efficiency.

According to Louisa Follis, Head of Dry Bulk Analysis at Clarksons, a ship brokerage and maritime consulting firm, oil tanker operators are willing to pay millions of dollars for priority lock passage, leaving bulk carriers transporting low-value goods such as grain facing the dual pressures of sharply rising freight rates and shipping delays. Currently, the average waiting time for bulk carriers to pass through the locks has extended to about 40 days. Up to now, freight rates on some core grain routes have risen by 50% to 60%, significantly increasing the cost of grain trade.

In addition, high fuel costs have further exacerbated shipping pressures. To control costs, shipping companies have been forced to slow down their ships, a move that has actually further reduced the effective capacity of the dry bulk market. "This has introduced inefficiency into the global shipping system as a whole," Follis added.

Reports indicate that this shipping predicament has had a particularly obvious impact on U.S. farmers. Currently, U.S. farmers are already facing fierce competition from low-cost grain-producing regions such as Brazil, and the sharp rise in freight rates has further eroded their profit margins, making it more difficult for them to enter emerging markets in the global grain market and increasing their survival pressure.

Inaccurate Market Pricing: Six Months of Disruption May Affect 2027 Harvests

According to industry insiders, global agricultural traders generally believe that the current market pricing for the potential risks brought by the ongoing turmoil in the Strait of Hormuz is still insufficient, failing to fully reflect the impact of long-term disruptions.

Chakravarthy clearly pointed out that investors generally hold an optimistic expectation that "the conflict will end in the short term," which has led to the systematic underestimation of the potential long-term impacts of the situation, and the market is seriously underprepared to respond to risks.

Even though global grain inventories are relatively abundant at present, he still warned that the response from governments around the world may further amplify the crisis impact. Out of consideration for food supply security, various countries may successively start accumulating strategic grain reserves. This move will further tighten the global available supply of grain and push up food prices continuously, among which the impact on food-import-dependent economies will be particularly significant, potentially triggering local food shortages.

"Everyone feels that their sovereignty is threatened to some extent in the global supply chain," Chakravarthy said, adding that such concerns may prompt various countries to adopt more aggressive trade protection measures, further exacerbating fluctuations in the global grain market.

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