The Hormuz Domino Effect: From Energy Shock to Food Crisis

by Shawn Reynolds, Ammar James, Andrew Musgraves of VanEck, 3/31/26
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Key Takeaways:

  • Strait of Hormuz disruptions extend well beyond oil, impacting global supply chains.
  • The most notable transmission is into agriculture, where constrained fertilizer supply is raising input costs and reshaping crop dynamics.
  • Third-order commodity effects may drive broader inflation and create uneven sector outcomes.

The Strait of Hormuz carries roughly one-fifth of the world’s seaborne oil and LNG trade. When traffic through this corridor falls — as it has sharply since early March 2026 — the effects don’t stay contained to energy markets. They ripple outward in ways that many investors haven’t fully priced.

Highlights from the conversation:

  • The disruption is real and structural — What began as a short-term energy story has evolved into something longer-term. The scale and duration of this disruption look meaningfully different from recent history, and the repercussions may fundamentally reshape the global economy.
  • Alternative routes are ramping, but capacity is limited — Crude loadings at Yanbu on Saudi Arabia’s Red Sea coast have risen sharply as flows reroute away from the strait. But existing infrastructure can only partially offset the disrupted Gulf export volumes, and a recent Iranian missile strike on Yanbu underscores how fragile even these workarounds remain.
  • LNG and natural gas prices are surging — European TTF gas prices have spiked to levels not seen since the Russia-Ukraine conflict, reflecting tightening global LNG supply. Disruptions to Qatari exports, including Qatar Energy’s declaration of force majeure, are a key driver, with downstream consequences extending well into chemical and fertilizer supply chains.
  • Refining margins are spiking — European crack spreads have surged well above historical ranges, signaling acute product market tightness as crude flows and refining inputs are disrupted simultaneously.

The Agricultural Transmission: From LNG to the Farm

The concentration of chemical and fertilizer production in the Persian Gulf reflects the region’s abundant, low-cost natural gas, which serves as both an energy source and a raw material feedstock for producing nitrogen, ammonia, and downstream fertilizer products. When that gas supply is disrupted, the effects move directly into agriculture.

Qatar alone produces roughly 5.5 million tons of nitrogen urea per year through QAFCO — the world’s largest single-site urea exporter — and that output is now effectively zero following force majeure. With no overland export alternative and storage buffers measured in weeks, the clock is ticking. Meanwhile, Iranian drone strikes on Qatar Energy’s principal production hubs have halted LNG output and shut down downstream chemicals and methanol production. The conflict has removed close to 40% of global nitrogen trade from the market, with an estimated 1 million tons of fertilizer physically stranded in the strait.

U.S. Gulf fertilizer prices are already responding. Nitrogen prices have risen more than 50% from pre-war levels, approaching levels seen during the Russia-Ukraine conflict. Phosphate has also moved higher, though the more immediate pressure is a margin squeeze: rising sulfur and ammonia input costs — with sulfur prices exceeding $550 per ton, more than triple year-ago levels — are compressing producer margins even as output prices increase. Potash remains the least affected nutrient, with its major supply basins in Canada, Belarus, and Russia sitting outside the conflict zone.

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