Trade giants warn: If the Strait of Hormuz continues like this, the energy crisis will turn into a food crisis.

Trade giants warn: If the Strait of Hormuz continues like this, the energy crisis will turn into a food crisis.

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The ongoing turmoil in the Strait of Hormuz is turning an energy shock into a potential global food crisis.

On April 22, according to the UK’s Financial Times, major commodity trading giants warned that disruptions in natural gas supply are squeezing fertilizer production. Meanwhile, competition between oil tankers and bulk carriers for shipping capacity is driving up the cost of food transportation, while the market still seriously underestimates the pricing of this risk.

The report states that at the Financial Times Commodities Summit held in Lausanne, Switzerland, Pablo Galante Escobar, head of LNG at Vitol, issued a warning: "We are running on borrowed time." He said that since the US and Israel launched strikes against Iran at the end of February this year, about 40% of the decline in natural gas demand has come from the industrial sector, with fertilizer plants being hit first. "This situation is unsustainable—otherwise, the energy crisis will turn into a food crisis."

Vijay Chakravarthy, Chief Risk Officer at Louis Dreyfus Company, one of the world’s largest agricultural traders, warned that the market generally expects the conflict to end quickly, causing investors to underestimate the possible depth of the impact. "The market is not pricing in a longer-term dislocation, and no one is prepared for this," he said, noting that even six more months of disruption could materially impact the 2027 agricultural production cycle.

The Strait of Hormuz carries about one-fifth of the world’s oil and liquefied natural gas exports, and about one-third of seaborne fertilizer trade, making it a strategic channel vital to both energy markets and food production.

Iran’s closure of the strait and the subsequent US naval blockade of this Gulf chokepoint have directly squeezed LNG flows. Natural gas is a key raw material for producing ammonia-based fertilizers; tightened supply means lower fertilizer output, threatening crop yields and driving up food prices over the next several quarters.

Chakravarthy also pointed out that competitive pressure is spreading to other key agricultural inputs. Sulfur, a vital fertilizer ingredient, is being snapped up in large quantities by higher value-added industries such as copper smelting, leaving fertilizer producers "at the end of the queue," further exacerbating supply shortages.

Capacity Battle: Tankers Squeeze Grain Ships, Freight Rates Soar 50% to 60%

Shipping disruptions sparked by Middle East tensions have spread widely through global logistics networks.

Asian buyers are turning to the US Gulf for crude oil to substitute for Middle Eastern supplies, causing a surge of oil tankers into the Panama Canal to compete with bulk carriers for scarce transit slots, worsening canal congestion.

According to Louisa Follis, Director of Dry Bulk Analysis at shipbroker and maritime consultancy Clarksons, tanker operators are willing to pay millions of dollars to jump the queue, causing ships carrying lower-value cargoes like grain to face higher freight costs and delays, with waiting times now stretching to about 40 days. Freight rates on some grain routes have already risen by 50% to 60%.

Soaring fuel costs further intensify the pressure, forcing ships to reduce speed, which effectively shrinks available dry bulk capacity. "Overall, this introduces inefficiency into the system," Follis said.

The report notes that the impact of this situation is particularly acute for US farmers. Already pressured by competition from low-cost producers like Brazil, rising freight costs further erode their profit margins, making it harder to penetrate emerging markets.

Market Mispricing: Six Months of Disruption Could Affect the 2027 Harvest

According to reports, agricultural traders generally believe that the market is still not sufficiently pricing in ongoing disruption risks.

Chakravarthy pointed out that investors’ expectation of a short-term end to the conflict is systematically underestimating its potential long-term impact.

Even though global food inventories are currently relatively ample, he still warns that policy reactions at the government level may magnify the shock. For supply security reasons, countries may begin building up strategic reserves, further tightening the globally available supply, pushing up prices, and making the impact especially pronounced on economies that depend on food imports.

"Everyone feels that their sovereignty is being threatened to some degree within the supply chain," Chakravarthy said.

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