Escalating tensions around the Strait of Hormuz are rapidly repricing risk across shipping, insurance and energy, pushing up landed grain costs, tightening fertilizer availability and raising food-security concerns in import-dependent markets.

In the wake of intensified conflicts in the Middle East, following joint U.S.-Israeli strikes on Iran and the subsequent de facto closure of the Strait of Hormuz, global agricultural markets are facing unprecedented volatility. This narrow waterway, a critical chokepoint for energy and commodity flows, has seen shipping traffic grind to a halt, raising alarms over fertilizer supplies, grain prices, and broader food security implications. As commercial vessels reroute or pause operations, the ripple effects are already manifesting in higher input costs for farmers and potential shortages that could exacerbate hunger in vulnerable regions.

The Strait of Hormuz, through which approximately 20% of the world's oil and a significant portion of liquefied natural gas (LNG) transits daily, is not just an energy lifeline but also a vital artery for agricultural commodities. Iran's Revolutionary Guards have prohibited passage, leading to immediate disruptions in tanker and bulk carrier movements. Oil prices have surged—Brent crude rising more than 5% to nearly $77 per barrel and U.S. diesel futures topping $3 per gallon for the first time since November 2023.

While Hormuz is best known as an energy chokepoint—handling about 20% of global oil flows—the disruption matters for agriculture because it feeds directly into freight rates, bunker costs and fertilizer supply chains.

INSURANCE AND FREIGHT: THE FASTEST TRANSMISSION INTO GRAIN PRICES

For grain buyers, the most immediate impact is not a shortage of wheat or corn at origin, but a sudden jump in the ‘cost to deliver.’ In a matter of days, war-risk premiums rose sharply, with Reuters reporting increases from roughly 0.2% to around 1% of a vessel’s value. That repricing widens bid-ask spreads, shortens offer validity and delays deal-making as traders wait for freight and insurance to stabilize.

Higher freight and war-risk costs push up CFR/CIF prices even when futures benchmarks are steady, particularly for destinations in the Gulf and nearby markets. For import tenders, the result can be delayed purchasing, smaller parcels, or a shift toward alternative supply routes and discharge ports where logistics are less exposed.

ENERGY VOLATILITY RAISES THE ENTIRE COST BASE

The Hormuz disruption has also amplified energy volatility. Brent crude briefly spiked as much as 13% amid fears that flows could be curtailed for an extended period. In grain logistics, higher oil prices raise bunker fuel costs and lift freight across both wet and dry bulk markets. For millers and feed users, this can translate into rising delivered costs and tighter working-capital needs.

FERTILIZER SUPPLY RISKS: A SECOND-ROUND SHOCK TO FOOD SECURITY

Beyond freight, the crisis is raising concerns about fertilizer availability and pricing, an indirect channel that can affect crop output in the next production cycle. Qatar supplies about 11% of global urea exports, and analysts note that a large share of urea and related nitrogen exports are linked to Persian Gulf facilities. Any prolonged disruption can therefore tighten supply, lift prices and complicate procurement for importers.

Argus reported that the Middle East is the world’s largest urea exporting region, shipping around 20 million tonnes per year—about 35% of global seaborne urea trade—while noting Iran accounts for roughly a quarter of that regional supply. If buyers cannot access Gulf-linked volumes at predictable freight and insurance terms, they may scramble for alternatives in North Africa, Southeast Asia or other suppliers, pushing prices higher across regions.

For agriculture, higher nitrogen costs can influence planting decisions and reduce fertilizer application rates, risking yield losses, especially in cost-sensitive markets.

GRAIN TRADE IMPACTS

The Middle East is among the world’s most import-dependent regions for staple grains and feed ingredients. When a maritime chokepoint reprices risk overnight, the challenge is not only price but execution: fixing vessels, securing insurance, and meeting delivery windows.

In the near term, traders expect:
• Wider tender price ranges as freight and war-risk premiums swing intraday
• More conservative shipping schedules and longer laycan windows
• Higher demurrage exposure if congestion builds at discharge
• Greater interest in ‘nearer’ origins or alternative routes where feasible

MARKET INSTABILITY TRIGGERS STOCK REVIEWS

Hesham Soliman, President of Mediterranean Star for Trading (Egypt), told Miller Magazine that the market has become “not stable” since the start of the conflict, with governments reassessing supply positions. “Every country now is reviewing the stocks,” he said, adding that Saudi Arabia is preparing “for a huge tender,” even as commodity and freight prices begin to move higher.

Soliman said a sustained Hormuz closure would likely tighten oil supply to multiple countries and lift energy prices, which would spill into commodities—“especially the freight.” He also pointed to energy-market knock-on effects in the region, noting that one result of the conflict is that “Israel stop supplying Egypt with gas.”

If the conflict drags on, Soliman warned that “insurance premiums and the freight and the currency as well as the commodities prices will rise dramatically,” raising the risk of a broader cost-of-living shock for import-dependent economies.

WHAT TO WATCH NEXT

Market participants will focus on how quickly traffic normalizes through Hormuz, whether war-risk cover is restored on workable terms, and how energy prices behave in the days ahead. For grain markets, the critical indicators are:
• War-risk pricing and insurer coverage decisions for Gulf-linked voyages
• Freight rate moves for routes into the Gulf and Red Sea-adjacent corridors
• Urea and ammonia price signals, and evidence of rerouted fertilizer flows
• Import tender timing and the size/frequency of government buying

In a market already strained by overlapping security and logistics risks, prolonged disruption at Hormuz would keep volatility elevated across oil, freight and grain, with fertilizer and food inflation risks following close behind.