War in Iran sends farmer’s fuel, fertilizer costs soaring
Forecasts for weaker crude oil prices this year are out the door as the Persian Gulf region falls into turmoil following the attacks on Iran by Israel and the United States.
At the start of the year, analysts expected a comfortable supply of crude this year, but as this column was written, the war has made the Strait of Hormuz, the narrow passage between Iran and the Gulf states, through which 20 percent of global oil trade flows, into a virtual no go zone.
Ship owners and insurance companies don’t want to risk the dangers of passing through the strait, which is in close range to Iran’s missiles and drones.
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The U.S.-Israeli war with Iran started Feb. 28 and continued unabated last week. This has had a profound impact on commodity markets.
Depending on how long the war lasts, it could seriously increase farmers’ costs for fuel and fertilizer.
The region is a major source of nitrogen fertilizer, ammonia, natural gas, sulphur and phosphate, and ships carrying those goods were also blocked.
No one knows how long the hostilities will continue.
U.S. president Donald Trump said March 2 that the bombing campaign could go on “for another four to five weeks, but we have capability to go far longer than that.”
It is a fast moving story. Observations made as this column is written could become irrelevant by the time subscribers read it.
For example, on the afternoon of March 3, Trump said the United States would provide risk insurance to ships in the region and held out the possibility of the U.S. navy escorting ships through the strait.
Will this solve the logistics problem and cause energy and fertilizer prices to retreat? Who knows?
Apart from crude oil and natural gas, markets are not sure of the economic implications of the hostilities. Will it spur inflation, affect interest rates, slow economic growth?
Agricultural crop commodities have not soared like oil and gas.
This is not a disruption such as Russia’s invasion of Ukraine, two of the world’s largest grain producers.
There is a link between crude oil and vegetable oil because of biofuel, but soaring crude in the days following the start of the bombing campaign had little impact on soy oil and canola prices.
Those commodities have seen steady, gradual price rises for months.
Canola is helped by China dropping its tariffs on seed and meal and soy oil supported by the expectation of favourable regulation changes for the U.S. biofuel sector. Also, late winter and spring are often a time of crop price rallies.
While the situation has not sparked crop price rallies, it is increasing input prices just before the spring seeding campaign.
Farmers’ margins were already precarious, and this could push up the potential for losses.
Corn, with its thirst for nitrogen, might be the crop most affected.
Global nitrogen fertilizer supply is tight, with prices rising this year due to China export restrictions, strong demand from India and global production generally lagging behind demand. The price rose even higher on the Iran war.
Josh Linville, vice-president of fertilizer for StoneX, a financial services company strong in commodities analysis, posted a telling post on March 3 on X.
He noted that urea arriving at the port of New Orleans on Dec. 4 was US$350 a ton but had risen 71 per cent to $600 by March 3.
The December 2026 new crop corn futures contract in the same period rose to $4.73 a bushel, up from $4.65, an increase of two per cent.
He and others have previously noted that the price of urea relative to the price of corn is among the worst ever.
The price of other fertilizers are also very high relative to corn.
This raises the potential for farmers, particularly those who have not already bought fertilizer, to seed less corn than they were hoping to.
The U.S. Department of Agriculture forecast in February that American farmers would lower corn area by 4.8 million acres to 94 million and increase soybeans by 3.9 million to 85 million.
The USDA survey-based Prospective Planting report comes out March 31.
Getting back to oil, at the end of 2025, many analysts expected that an oversupplied market would caused Brent crude to average around $55-$60 a barrel. On March 3, it was trading at more than $81. The build-up of tensions starting in January had already pressed the price to the $65-$70 range.
Stronger-than-expected Chinese demand and weaker-than-expected production increases from the U.S. and Brazil also supported the price this year.
Nevertheless, if the Iran war ended soon, prices would likely get back below $70 quickly. The expected surplus might not be as large as expected, but if were not for the war, there would not be a shortage.
OPEC+ is planning a modest production increase in April, which might or might not be a factor, depending on whether Persian Gulf shipping resumes.
Source: producer.com