Middle East conflict: The ripple effect through the ag sector
The conflict in the Middle East, particularly the disruption of the Strait of Hormuz, has had far-reaching consequences globally. As one of the world’s most vital energy transit routes, the instability in this region has significantly impacted energy supplies, trade flows, and economic stability.
The resulting surge in oil and gas prices – crude to US$100-110 per barrel (nearly 20% of global oil trade) and natural gas up 35% – coupled with supply chain disruptions from a 70% drop in shipping, stranded ships, and soaring insurance, has intensified inflationary pressures. This significantly impacts global agriculture, livestock feed, and the dairy industry.
Rising fuel and fertiliser costs, with urea prices surging and 20-50% of shipments disrupted, increase input costs across the agricultural value chain, from crop production to feed manufacturing and dairy processing—ultimately leading to higher prices and volatility in global food and dairy markets.
Escalating energy and trade risks
The Strait of Hormuz crisis has triggered a major global energy and supply shock, driven by supply shortages, geopolitical tensions, ongoing drone/missile attacks on tankers, and extreme logistics risks. If this continues, it could severely disrupt global sea trade with the Persian Gulf, posing a direct threat to food security in Gulf countries reliant on grains, oilseeds, and vegetable oils—while contributing to rising global inflation, fuel shortages, and slowing trade growth.
Crop, feed and livestock pressures
The Strait of Hormuz crisis and broader Middle East conflict are exerting a measurable impact on agriculture, livestock feed, and dairy. According to the International Food Policy Research Institute (IFPRI), disruptions have pushed energy prices sharply higher. Fertilizer costs have risen substantially since they depend heavily on natural gas, directly affecting feed crop production (fertilizers account for nearly 40-50% of total energy input in maize and soybean cultivation).
Additionally, IFPRI highlighted that about 4-5% of global seaborne grain trade flows through the region, increasing freight costs and delaying supplies. From a production perspective, generating 1 kg of livestock feed requires approximately 3-10 MJ of energy (~70 to 230 ml of oil), so rising costs place pressure on producers (feed is 60-70% of total costs), leading to higher dairy, meat, and poultry prices.
As noted, the crisis has disrupted 20-50% of global fertilizer shipments, and meanwhile, , urea prices have increased sharply per tonne within a few weeks (urea is the most widely used solid nitrogen fertilizer globally). These rising input costs directly impact agricultural productivity, as farmers are forced to reduce fertilizer application to manage expenses. This, however, could results in lower crop yields by up to 50%, particularly in regions highly dependent on chemical inputs. As a result, the supply of key crops such as wheat, corn, and soybeans is expected to tighten, driving up global food prices.
Dairy’s vulnerability
The dairy industry is among the most vulnerable to the ongoing Strait of Hormuz crisis due to its heavy dependence on both feed and energy inputs. Feed alone accounts for up to 70% of total dairy farm costs, making it the largest cost component, while energy is essential for farm operations, milk processing, and cold chain logistics.
With an increase in global oil prices, the cost of fuel, electricity, and transportation has increased significantly, raising overall production expenses across the dairy value chain. As a result, dairy producers are expected to experience a steady rise in the cost of milk production, while profit margins are being compressed due to higher input costs. This financial pressure is likely to be passed on to consumers in the form of increased prices for milk and dairy products. Historical evidence further supports this trend, showing that spikes in energy prices quickly translate into higher feed costs and subsequently higher dairy production costs, as observed during previous global supply disruptions.
Conclusion
Governments and industry players are beginning to explore alternative sourcing strategies and supply chain diversification to mitigate risks. Looking ahead, if the conflict persists, the global agri-food system may face sustained instability. As the situation evolves, stakeholders across dairy, livestock, and agriculture must adapt to rising costs, supply uncertainties, and shifting market dynamics.
Overall, the Strait of Hormuz crisis demonstrates the deep interconnection between energy and food systems. The crisis highlights how even a geographically localized disruption can cascade through the global agri-food value chain, creating widespread economic and food security challenges.
