Food Supply Shocks from Iran War: Inevitable Impact and Potential Escalation

World food prices are reaching unprecedented levels, comparable to the energy crisis of the 1970s. The ongoing conflict in the Middle East is exacerbating inflation, with rising costs for fuel, fertilizers, and pesticides. Are we on the brink of the worst food shock in history?

Many farmers are likely to decrease planting due to soaring costs, possibly leading to food shortages and increased prices later this year. How severe the situation becomes will depend on various factors, including the duration of the conflict and the impact of extreme weather events linked to climate change on crop yields.

“This could escalate into a major crisis for the impoverished and food-insecure,” warns Matin Kaim, a researcher at the University of Bonn, Germany.

“We’re facing a perfect storm. The resolution isn’t straightforward,” states Tim Benton of the University of Leeds, UK. “Even a resolution tomorrow may not yield immediate results, as seen with the post-COVID-19 recovery.”

After decades of decline since the 1970s, global food prices have climbed in real terms since the 2000s, nearing their historic peaks. Climate change intensifies this issue with increasing heatwaves, floods, and storms negatively affecting crop yields, resulting in global food shocks like those observed in 2010. The COVID-19 pandemic and Russia’s invasion of Ukraine have also led to significant price spikes.

Rising biofuel production is contributing to increased food prices, with over 5% of food calories now converted into fuel. Some governments have acknowledged the need to reduce food-based biofuels; however, a report suggests that by 2030, 92% of biofuels will still rely on food sources.

Currently, due to US and Israeli actions against Iran, there’s a significant depletion of essential raw materials for food production and distribution. Fuel, particularly diesel, is crucial as it powers agricultural equipment and transports food. Consequently, higher oil prices directly influence supermarket prices.

Fertilizers, crucial for global food supply, are also facing shortages. “If we halted the use of mineral fertilizers globally, it could lead to widespread hunger,” notes Keim.

Nitrogen fertilizers are produced using hydrogen and atmospheric nitrogen to create ammonia, relying heavily on natural gas for hydrogen and electricity. Qatar, with its abundant natural gas, is a significant fertilizer producer, supplying about 15% of the global urea market. However, due to the conflict, this urea cannot traverse the Strait of Hormuz, thus complicating supply chains.

Countries such as India, Bangladesh, and Pakistan, which produce substantial amounts of their fertilizers from Persian Gulf gas, are facing factory shutdowns due to war-related damages. Additionally, Australia’s main fertilizer facilities are currently non-operational due to an incident.

Consequently, nitrogen fertilizer prices have already surged by over 33% and could escalate further. “If fertilizer costs double, food prices could easily rise by 20 to 30%,” warns Keim.

Beyond urea, Gulf states like Qatar and the UAE are also major sulfur fertilizer producers, essential for various regions and for converting mined phosphates into usable forms for plants.

Pesticides, essential for safeguarding global food production, are also influenced by rising prices tied to naphtha costs, a fossil fuel derivative used in food packaging.

“In March alone, three of the world’s key naphtha export terminals were targeted in drone attacks,” notes Jide Tijani of Argus Media, UK. These include Russia’s Ustiluga port and facilities in Qatar and the UAE.

The consequences of these developments will likely lead to escalated food prices and a range of other commodities in the coming months and years. “The number of affected markets is staggering,” remarks Jason Hill at the University of Minnesota.

Farmers face increasing costs for fuel, fertilizers, and pesticides, all of which affect their planting decisions. Uncertainties regarding profitability may lead farmers to switch crops or abstain from planting altogether. Speculation and profiteering could further compound price rises, according to Jennifer Clapp at the University of Waterloo, Canada.

How severe could the situation become? The dramatic increases in food prices in the 1970s were partly due to dwindling global food reserves, warns Clapp. While reserves are currently sufficient, prolonged conflict could drastically alter this, especially if abnormal weather caused by climate change negatively affects crop yields.

“There is a substantial chance this could escalate into a crisis of equal or greater magnitude,” Clapp asserts. “Significant climate change could worsen the situation further.”

“Food prices are causing distress across the globe, disproportionately affecting lower-income populations who spend a significant portion of their income on food,” notes Keim.

Additionally, international aid is already diminishing and will likely be further curtailed. “Rising food prices often coincide with increased demand for aid, yet the available funding diminishes as costs escalate,” shares Benton.

This rising tide of food prices may lead to social unrest in the most severely impacted regions, as explained by Paul Behrens at Oxford University. “We’ve observed instability in times of rising food costs throughout history.”

Strategies Nations Can Implement to Mitigate Food Shocks

There are strategies to alleviate the situation. “In Europe, around 15 million loaves of bread are produced daily for biofuel,” points out Behrens, calling it an illogical method for energy generation.

As biofuel production primarily hinges on state incentives, governments can curtail its production to divert more food to markets. “This would make a significant difference,” remarks Keim.

He advocates for an international consensus that limits biofuel production from food sources when prices surge. Unfortunately, such actions have not materialized in past crises.

Instead, nations are likely to ramp up biofuel production to counteract rising fuel prices, which could significantly affect food pricing, according to Keim.

Initiatives are already underway; the United States recently announced an increase in the bioethanol proportion in fuels to mitigate price hikes. Australia is also contemplating similar measures.

However, ramping up food-based biofuels won’t substantially impact fuel prices but will dramatically influence food prices. For instance, a third of corn produced in the U.S. is converted into bioethanol, contributing minimally to gasoline supplies but having a disproportionate effect on food availability, asserts Hill.

“Enhancing ethanol in gasoline harkens back to the 1990s—a policy that fails to address air pollution or climate change,” critiques Simon Donner at the University of British Columbia. “Higher oil prices should instead be seen as an opportunity to transition towards cleaner, more advanced technologies like electric vehicles.”

The global community is unlikely to want a repeat of this supply shock. “This situation poses a significant challenge, raising questions on how to build a more resilient system going forward,” Hill emphasizes.

Accelerating the transition to renewable energy and electric vehicles could leave economies vulnerable to oil price shocks. Furthermore, there’s a need to transform the chemical industry to reduce fossil fuel dependence.

In terms of nitrogen fertilizers, this means generating them from electricity rather than natural gas. “It’s feasible to produce ammonia with zero greenhouse gas emissions,” states Ryan. “The technology exists; the challenge is harnessing enough renewable energy.”

Demand for electricity is surging, especially for data centers supporting AI technology. This scenario is unlikely to improve unless there’s a significant decline in AI development.

In the meantime, there are several ways to optimize fertilizer use. Excessive fertilizer application in many regions leads to runoff into water systems or the release of nitrous oxide, a potent greenhouse gas. Techniques to mitigate overuse include precision agriculture, crop rotation with legumes, and the development of crops that utilize fertilizers more effectively.

“We need to promote a more sustainable farming system,” Keim concludes, highlighting that sustainability does not automatically mean organic practices. A shift to organic farming could dramatically elevate food prices and contribute to deforestation, given the need for additional farmland.

“A fundamental change in our food system is imperative,” asserts Behrens. This includes modifying our dietary habits—favoring protein sources such as beans and legumes over grain-fed meat, which require significant fertilizer input. “This transition could yield substantial benefits,” he emphasizes.