Impact of the Middle East Conflict on Ag Markets

The Middle East’s role in the global commodity market is crucial not just for production but for logistics and trade. The Middle East produced approximately 30% of the world’s Oil and 17% of natural gas in 2024. Approximately 35% of shipped Urea flows from this region. When complex supply chains and a global marketplace is challenged there is obviously substantial market reaction.

A consequence of the conflict has been the rapid decline in movement of marine traffic in and out of the region. The Strait of Hormuz is a critical throughfare for vessels transporting all sorts of tradeable goods especially oil, liquified natural gas (LNG) and fertilisers that are produced in the region. According to the U.S. Energy Information Administration, approximately 27% of global maritime oil trade is shipped through the Strait each year. The elevated risk environment has resulted in a bottleneck of vessels in the Strait, with shipping companies facing increased uncertainty around lead times, rerouting, port access and cargo loading delays.

This disruption affects not only getting critical product out of the region, but also the shipment of food commodities into the region. The conflict also creates significant risks for businesses and workers in the region, leading to variability in the operation of manufacturing facilities and energy pipelines, with broader implications across the global energy supply chain.

Crude oil prices have increased approximately 40% week on week (WoW) and finished the 10^th of March at USD$98/barrel with daily trading quotes approaching US$117/barrel earlier in the week. Markets remain highly reactive to developments related to the conflict and its potential duration, contributing to the volatility seen so far.

Crude oil price changes have a profound impact on almost every aspect of the global economy, but one of the most relevant for Australian farmers and agribusiness is the change in Diesel prices in reaction to the news. The Average Australian Terminal gate price (wholesale bulk pricing) of Diesel across the major ports has increased 33% WoW, ranging from 217¢/l to 225¢/l depending on the port. Not only does this increase the wholesale price petrol companies are paying, but it flows through to the bowser and retail pricing.

Speculation has resulted in increased traffic at retail fuel stations as consumers increase consumption either not wanting to be caught short of fuel or wanting to avoid further price increases. This has meant Diesel is experiencing both supply and demand side pressures. Historically, when Crude Oil prices sit above $100US/barrel, the average price of diesel terminal gate prices is 190¢/l. This is lower than today’s pricing and reflects the volatile nature of oil markets. When consumers see alleviation of local access concerns, the demand side rush to acquire bulk volumes of diesel dissipates which typically provides some price relief.

Fertiliser is also impacted significantly by the conflict for a number of reasons. Firstly, energy costs rising due to pipeline shutdowns impacts the cost and efficiency of manufacturing fertilisers in the region. Tightened supplies of imported LNG are increasing prices for many global nitrogen producers, leading to lower nitrogen operating rates in countries like India. Secondly, the conflict directly threatens infrastructure, staff and systems that are used to transporting product from manufacturers to transport hubs. Thirdly, the additional costs impacting fuel and insurance for vessels potentially transporting cargo has increased. Finally, and most importantly, the concentration of Fertiliser production in this region and virtual halting of any trade from it impacts buyers all over the world, not just a few specific customers. Middle East Granular Urea “Free on Board” (FOB) futures price in $USD/t increased 35% from the end of February to US$655/t end of day 10^th of March per Bloomberg. This increase is a clear reaction to uncertainty around access to supply.

For Australia, the Middle East region is the origin of an estimated 68% of annual Urea imports and 26% of annual MAP/DAP imports per Argus, so this inherently presents challenges for the supply chain. Importantly, this region isn’t the only source of supply for Urea and MAP/DAP, and the global marketplace is actively monitoring the situation with other providers. The key pieces of uncertainty clouding the Middle East sourced product is both short term production capacity and access for vessels to load and leave with product. Until there is more certainty on this, pricing and delivery timelines will remain volatile as the global marketplace adapts.  

It’s not only inputs, but the production and trade of outputs that are related to energy shocks. As discussed on Mecardo last week, typically we do see grain and oilseed prices rise when oil rises. Conflict is generally a driver of grain and oilseed commodity price rises with uncertainty motivating buyers to search for reliable supply at a higher price as the market reacts to potential trade issues.  Whilst this means we can expect some price improvement, the strong and rapid increases in grain prices we saw in 2022 in response to the Russia and Ukraine conflict are unlikely to be repeated at this time as the current situation presents limited grain and oilseed supply risk. Currently, global supply and ending stocks of staple grain and oilseeds is higher now than in 2022, and the Middle East is a net importer of these products and not a producer. Logistics of trading grain are exposed to the same logistics risks discussed earlier; however, the world’s grain needs are sourced elsewhere. Prices have traded narrowly in both local and global wheat markets so far this month.  

The Middle East is an important destination for Australian sheepmeat.  2025 saw less lamb volumes into the Middle East as saleyard prices rose and production decreased, but this region is still a key destination for 20% of Australian Lamb. Amongst the UAE, Saudi Arabia, Jordan, Qatar and smaller volumes elsewhere, an average of 5543 tonnes of Lamb and 5309 tonnes of Mutton could be impacted per month. While marine shipping is still critical in the trade of sheepmeat, 34% of last year’s sheepmeat exports into the region from Australia were via air freight. This presents more flexibility for the supply chain to provide red meat into this region as demand for protein remains strong. The Middle East has much lower export demand for Australian Beef relative to sheepmeat, with Saudi Arabia the leading destination averaging over 1331 tonnes a month last year, this amounts to roughly 1% of market share.