Rising energy prices during the Iran war are worrying Wall Street, but UBS warned that food prices could continue to rise. Since the start of the Middle East conflict, international Brent crude oil futures have soared 50% and West Texas Intermediate futures have risen 66%. UBS economist Erlend Kapteyn said higher energy prices have subsequently pushed up fertilizer costs, especially as the Strait of Hormuz is a key route for the transport of ingredients such as urea and ammonia. If fertilizer becomes more expensive, the cost could be passed on to food buyers, economists said. “Rising energy prices are spilling over into the fertilizer market, which is a major driver of global food prices,” Kaptein wrote in a note to clients late last month. He said supply chain risks had been “amplified” by disruptions to natural gas production, which accounts for 60% to 80% of total fertilizer costs. Last month, Qatar’s Ras Laffan industrial city, home to the world’s largest liquefied natural gas export facility, was targeted by an Iranian missile attack. Due to the recent spike in energy prices, Kaptein said he expects fertilizer prices to rise 48% year-on-year from the current utilization rate of about 32%. As a result, global food prices could rise by 12% year-on-year, economists found. Mr. Captain said the result could be an additional 50 basis points rise in inflation in developed countries. Meanwhile, emerging markets could see up to 240 basis points of additional inflation. “These are only first-stage effects…but without energy price mitigation, food price shocks in emerging markets could rival energy shocks,” Kaptein wrote, using the emerging market acronym.
