Blockade of the Strait of Hormuz, a direct hit to world agricultural production

The Food and Agriculture Organization of the United Nations (FAO) has warned that the Persian Gulf crisis is having a serious impact on global agricultural production and food security. “Time is of the essence, the clock is ticking,” FAO Chief Economic Officer Maximo Torero said at a press conference held at the United Nations headquarters in New York. “We must find a solution as quickly as possible,” he said.

Since the outbreak of war, oil tanker traffic in the Strait of Hormuz has plummeted by more than 90%. This strait is a key maritime passage through which 35% of global crude oil flows (20 million barrels per day), 30% of fertilizer trade, and 20% of liquefied natural gas (LNG) pass through during normal times.

‘Double shock’ faced by farmers

Farmers are suffering from a ‘double shock’ as fertilizer and fuel prices soar at the same time. Both elements are essential inputs for agricultural production.

Chief Economic Officer Torero predicted that if a solution is found early, the market can stabilize within about three months. However, if the chaos continues, the situation will change. “The medium-term scenario of a three-month lockdown will affect all farmers around the world,” he said. “A variety of factors can affect it, including reduced crop yields and crop replacement in the next crop season.”

If oil prices exceed $100 per barrel, competition with the biofuel sector could also be triggered. In this case, farmers would benefit, but "it would be a bad situation for consumers because prices would rise," Torero added.

Historical context of the crisis: the link between energy and food

The link between energy transport and food security through the Strait of Hormuz has been revealed several times in the past. During the oil crisis in the 1970s, a surge in fertilizer prices hit global agricultural production, and during the oil price surge just before the 2008 global financial crisis, food prices also rose, causing food riots in developing countries.

Even during the Russia-Ukraine war in 2022, disruption in grain and fertilizer exports through the Black Sea raised global food prices. There is a possibility that this Persian Gulf crisis will surpass previous cases in scale and scope of impact.

Current status of vulnerable countries and impact on Korea

In the short term, countries such as Sri Lanka and Bangladesh, which are currently entering the rice harvest season, are of priority interest. African countries that rely on fertilizer imports are also vulnerable, and major exporting countries such as Argentina, Brazil, and the United States are also expected to be affected.

In the Gulf region, food prices in Iran are already “soaring.” Iran produces about 70% of its own food but relies on imports for the rest. “Large food importers” such as Qatar and the United Arab Emirates (UAE) are also expected to face difficulties as ships do not reach the region.

Korea is also not free from this crisis. Korea relies on imports for a significant portion of its fertilizer raw materials and has an economic structure that is sensitive to fluctuations in energy prices from the Middle East. In particular, rising prices of agricultural fuels and fertilizers can have a direct impact on domestic agricultural product prices. Additionally, concerns are raised about the safety and economic activities of Korean companies and workers operating in the Middle East.

A blow to migrant workers’ remittances

Gulf countries employ millions of migrant workers from South Asia and East Africa. If the conflict continues, the remittances they send to their home countries may decrease, which is expected to cause a chain of blows to the economy of the migrant workers' countries of origin.

Future outlook [AI analysis]

The direction of this crisis depends on the speed of diplomatic resolution. In the short term, it is urgent to secure alternative maritime routes, and emergency balance of payments support for import-dependent countries must be provided before planting season.

In the medium term, it is necessary to diversify fertilizer import sources, strengthen sharing of regional stockpiles, and avoid export restrictions. In the long term, strengthening the resilience of the food system is a key task.

Chief Economist Torero concluded: “The food system must be treated with the same strategic importance as the energy and transport sectors and invested accordingly to minimize the impact.”

If the crisis continues for more than three months, global food prices are likely to exceed 2022 levels, which is expected to hit developing countries and low-income groups most dependent on food imports the hardest. In the case of Korea, the short-term shock may be limited, but if the crisis prolongs, it is likely to face rising price pressures and a worsening trade environment.