Because they improve the yield of crops, fertilizers are critical to the global food supply. Synthetic nitrogen fertilizer* alone is estimated to support about half of the world’s population, and phosphate and potassium fertilizers are also critical to plant life.

And, like crude oil and natural gas, a large portion of the global supply of nitrogen fertilizer (about 20-30%) flows through the Strait of Hormuz. The Strait is also a key supply route for phosphate fertilizer and the sulphur needed to produce it.

With the Strait largely closed to shipping due to the Iran war, concerns are mounting regarding the negative impact of higher energy and fertilizer prices on the availability and price of food.

Recent history points to the jump in food prices when war disrupts the global food supply with the Russian invasion of Ukraine in February 2022 sending the price of crops like wheat and canola to all-time highs.

The higher oil and natural gas prices that accompanied the conflict dogpiled on top of higher crop prices by increasing the cost of the fuel used to produce and transport all sorts of agricultural products.

The increase in food prices after Russia invaded Ukraine was also driven by a spike in fertilizer costs due, among other things, to elevated natural gas prices (a critical feedstock and energy source for fertilizer production) and the disruption of fertilizer supplies from the region. The Green Markets Weekly North America Fertilizer Price Index hit an all-time high in the months after the Russian invasion. As of March 6, the index was at its highest level since October 2022.

In Alberta, the price of wheat, canola and barley (the province’s three largest crops) set records in the wake of the Russian invasion while the price of food at the grocery store rose by 11% in just 12 months.

It’s a different conflict, but the Iran war is already having a similar impact on the price of the energy and fertilizer that underpin the global food supply. The West Texas Intermediate (WTI) oil benchmark was trading in the mid-90s** yesterday versus the mid-60s before the war started, natural gas prices have spiked in Europe and Asia, and global nitrogen fertilizer prices have also followed suit.

As reported in The Western Producer: “Prices in the United States, which imports much of its fertilizer needs despite a large domestic industry, rose at the war’s outbreak. Prices for fertilizer jumped from $516 (C$706) per metric ton on Friday [February 27] to up to $683 (C$934) at the import hub of New Orleans on Thursday [March 5]. Prices could jump higher if the Persian Gulf closure persists and shipments can’t make it in time for spring planting, analysts told Reuters.”

The global fertilizer market relies on some key regional production areas for nitrogen, phosphate, and potassium fertilizers (Canada, in particular, on the latter), and supply disruption in one region of the world can have serious global implications in terms of availability and price. Analysts warn that a prolonged disruption of traffic through the Strait of Hormuz could cause a major nitrogen fertilizer supply shortage for a nutrient that was already in tight supply. While many western Canadian operations have likely secured most of their fertilizer supplies for the spring seeding season, prices were already elevated before the Iran war broke out and any purchases from now on will be even more expensive.

The bottom line is that the Iran war is increasing input costs for agricultural and food producers around the world, both energy and fertilizer (assuming they can even get the fertilizer they need), including downstream storage and transportation costs. As a result, food prices will be impacted again.

The longer the war lasts, combined with the degree to which physical energy, transportation and fertilizer manufacturing infrastructure is damaged, will be a key factor determining just how large the impact will be on the global food system.

*Fertilizers come in many formulations but the major components are nitrogen (N), phosphorus (P) and potassium (K). Natural gas is a key source of feedstock and energy for fertilizer production.

**U.S. dollars per barrel.

Answer to the previous trivia question: Adam Smith’s seminal “The Wealth of Nations” was published on March 9, 1776.

Today’s trivia question: Why is potash (a potassium-based fertilizer that is abundant in Saskatchewan) called potash?