The war in Iran could hit a heavy blow to one of the country’s largest industries, one that supports millions of livelihoods.
Now in its fourth week, the conflict has sparked the largest oil supply shock in history and sent gasoline prices soaring worldwide. But fuel products are not the only item to normally pass through the Strait of Hormuz, the critical waterway that has essentially been blockaded for almost a month.
How the Strait of Hormuz blockade is cutting fertilizer supply
Before the war, around one-third of the global fertilizer supply chain passed through the strait, including half of the world’s urea, a nitrogen-based fertilizer vital to many modern farming operations, including in the U.S. The gaping hole in fertilizer supply is, in some ways, a more intractable challenge than the energy crunch, and comes at one of the worst possible times for American farmers.
The U.S. food and agriculture industry does a lot more than putting food on the table: It is a booming business that employs millions and accounts for a huge chunk of the country’s economic output. That value was recently quantified in a sweeping report authored by 35 industry groups and published Monday, shedding light on just how widespread an impact a sustained fertilizer shortage would have on the U.S. economy.
The $10 trillion sector on the line
The sector generates $10.4 trillion in value, around 20% of the U.S. economy’s overall value, the report found. It also supports more than 48 million jobs, including positions in government, tourism, and retail. The jobs story is actually one of growth, as the report also found direct employment in the food and agriculture sector has risen 6.5% over the past decade.
Fertilizer plays an important role in the agricultural economy. In a statement, Corey Rosenbusch, CEO of the Fertilizer Institute, an industry group that participated in the report, called the impact of fertilizers “essential” to the economy.
“Each year, fertilizer delivers $37 billion in wages, supports half a million jobs, and has an economic impact of $140 billion,” he said.
But curtailed exports from the Middle East threaten to undermine that trade, with ripple effects likely to go far beyond the fertilizer industry alone. While the U.S. produces much of its fertilizer at home, it relies on imports for 25% of its stock, including 18% of its nitrogen use. Qatar and Saudi Arabia were important nitrogen suppliers to the U.S., but supply now remains stranded in the Persian Gulf. And much like oil, fertilizer is a globally traded product, so regional supply disruption can lead to price shifts in the U.S.
Why spring planting season makes the timing especially painful
Those swings are already painfully evident for U.S. farmers, with benchmark nitrogen costs at U.S. ports rising nearly 30% since the war began. For many producers, fertilizer can be the single largest variable cost in growing major row crops, and the new spike comes at one of the worst possible times in the sector. This is around the time most farmers finalize their fertilizer purchases ahead of their spring planting season, for crops like corn in the Midwest and cotton in the South.
The extent to which the war in Iran might deal long-term damage to U.S. agriculture remains unclear. There are few alternatives to Middle Eastern fertilizer exports. Unlike oil, which continues to trickle out of the region in small quantities through Saudi pipelines, the Gulf, and the currently blocked strait, is the only way for any significant fertilizer quantities to reach global markets.
Alternative suppliers exist, including Morocco and several Latin American countries, but high prices for U.S. farmers will likely remain until the strait reopens, with the list of possible economic consequences growing longer by the day. Prices could go higher still if more countries follow the lead of China, which last week restricted its own fertilizer exports in a bid to stockpile its reserves.
This story was originally featured on Fortune.com
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