The blockade of the Strait of Hormuz triggered by the Iran conflict is causing a rare structural divergence in the global fertilizer supply chain. Combined with the threat posed by El Niño weather patterns, global food markets are approaching a dual supply shock that could replicate the stagflationary conditions of the 1970s.
Although the Strait blockade has not yet immediately triggered a full-scale surge in grain prices, severe fragmentation has already emerged within the fertilizer market: phosphate fertilizers have surged by 25% due to sulfur shortages, while urea prices have declined by 20% amid ample Chinese supply releases and high inventory levels. This extreme supply-demand divergence is differentially transmitting cost pressures across crops, quietly reshaping the global agricultural cost curve.
Investors are further alarmed by the emerging macroeconomic resonance between extreme climate risks and soaring energy prices. Analysts warn that concurrent supply shocks to both energy and food could revive the inflationary nightmare of the 1970s—not only directly pushing up global food prices but also deepening central banks’ policy dilemma between combating inflation and guarding against economic recession.
Although current proxy indicators for overall fertilizer prices have moderated—suggesting mild near-term food price pressures—the compounding vulnerabilities in supply chains and climate-related risks mean the alert for a global food crisis remains far from lifted.
Structural Fragmentation in the Fertilizer Supply Chain: Soaring Phosphate Prices versus Declining Urea
The actual blockade of the Strait of Hormuz poses a direct threat to global fertilizer trade.
Prior to the conflict, approximately one-third of global urea trade and 15% of ammonia trade transited through the Strait. However, Bloomberg macro strategist Simon White notes that nitrogen-based compounds have so far been relatively insulated from the war’s impact, with ammonia prices rising only modestly and urea prices actually falling by 20% compared to pre-conflict levels.
Urea’s counter-trend decline is primarily attributable to several buffering factors: global inventories remain relatively high, farmers in the Northern Hemisphere have already completed their seasonal purchases ahead of schedule, and China has released additional urea supplies, effectively capping upward price pressure.
In contrast, the phosphate fertilizer supply chain is more exposed to Middle Eastern geopolitical developments. Phosphate production is heavily reliant on sulfuric acid, and half of the world’s sulfur exports originate from the Gulf region. Driven by sulfur supply shortages, phosphate fertilizer prices have risen sharply by 25% since the onset of the conflict. This divergent pattern—rising phosphate versus falling urea—implies starkly different cost pressures for cash crops (which depend heavily on phosphate) versus staple field crops (which rely more on urea), thereby influencing farmers’ planting decisions and future crop supply structures.
El Niño Compounding Effect: The Hidden Threat to Crop Yields
Against the backdrop of diverging fertilizer costs,叠加的 El Niño-related climate risks have further amplified the fragility of global food supplies.
Extreme weather patterns may not only directly reduce yields in major grain-producing regions but also alter the transmission pathways of pests and diseases, thereby increasing implicit costs in agricultural production.
As disruptions to fertilizer supply chains coincide with El Niño-related climate risks, global agriculture now faces a dual squeeze of rising costs and declining output. For emerging market countries that are heavily reliant on imported fertilizers and possess limited climate adaptation capacity, this compounding shock is particularly severe—it could directly trigger localized food security crises and transmit price pressures across global food markets through international trade networks.
Dual Energy and Food Shocks: A Repeat of 1970s-Style Stagflation Risk?
The current macroeconomic environment exhibits dangerous parallels to the stagflationary conditions of the 1970s. The conflict involving Iran and the blockade of the Strait of Hormuz have already disrupted global oil and natural gas supplies by millions of barrels per day, driving Brent crude prices above $110 per barrel. Surging energy prices are not only directly elevating fertilizer production and transportation costs but also fueling broad-based imported inflation.
Analysts warn that simultaneous supply shocks in both energy and food sectors are reviving the macroeconomic risks that drove inflation during the 1970s. Against this backdrop, markets have completely priced out expectations of Federal Reserve rate cuts, leading to widespread sell-offs in sovereign bonds such as U.S. Treasuries and a sharp rise in yields. Traditional safe-haven dynamics have broken down: global equities are under pressure, gold is being sold off for liquidity, and capital is fleeing into cash—triggering synchronized declines across asset classes.
If food prices surge materially over the coming months due to fertilizer supply chain disruptions and El Niño-driven production shortfalls, global inflation could face a second-round rebound. This would not only entirely eliminate any room for monetary policy easing by central banks but could also severely drag down global economic growth, pushing the macroeconomy into a classic stagflationary trap. For investors, managing tail risks stemming from these dual energy and food shocks has become a critical consideration in current asset allocation strategies.
Editor/Deng