There's a major inflation risk lurking for the economy as the Iran war drags on, and it's not oil

• The war in Iran has disrupted trade through the Strait of Hormuz, pushing oil prices higher.
• But oil isn't the only critical commodity that passes through the Strait.
• The disruption has also affected fertilizer prices, which could translate into higher global food prices.

Oil is not the only commodity being upended by the Iran war.

Disruptions to shipping in the Strait of Hormuz have also throttled flows of critical fertilizer products, and the result could be another dire hit to inflation that pushes up food prices globally.

Skyrocketing oil prices have reignited inflation worries and recession fears. Like oil, fertilizer prices have surged as the war drags on, with shipping through the key waterway grinding to a halt.

"Higher fertilizer costs will certainly contribute to higher prices at US supermarkets," Chief Economist and Principal, RSM US LLP economist Joseph Brusuela said this week.

The UN estimates that roughly one-third of global seaborne fertilizer trade passes through the Strait of Hormuz.

Fertilizer price spikes risk food inflation

Rising prices for oil and critical agricultural inputs like fertilizers risk major inflationary pressures on the US economy, industry experts have warned.

Chemicals that the global agriculture industry relies on, like urea, ammonia, sulfur, nitrogen, and phosphates, have seen a surge in price since the war started, just in time for the spring planting season. Farmers need these fertilizers for corn, wheat, cotton, and other staple crops.

Disruptions to the fertilizer trade in the Middle East are felt differently across economies, with the UN warning that the poorest countries are most at risk.

The US is less directly dependent on the region for fertilizers compared to other markets, but it is still significantly affected, given that domestic prices are tied to global supply dynamics.

The Fertilizer Institute explained that nearly 50% of global urea and sulfur, as well as 20% of natural gas, a feedstock for nitrogen fertilizers, travel through the Strait of Hormuz.

Ammonia and phosphate are other chemicals at risk of price shocks that could hurt American farmers and lead to higher food prices for consumers.

Urea prices have surged since the war began at the end of February.

The price of food at the supermarket tends to lag fertilizer supply disruptions, meaning inflationary pressure might not be reflected in economic data for months to come.

Industry leaders urge Trump to intervene, warning of food inflation

The American Farm Bureau Federation (AFBF), a national advocacy group for the US agriculture industry, called on President Donald Trump to intervene to avoid food-supply shocks.

"Without strategically prioritizing the delivery of critical farm inputs … the U.S. risks a shortfall in crops. Not only is this a threat to our food security — and by extension our national security — such a production shock could contribute to inflationary pressures across the U.S. economy," AFBF president Zippy Duvall wrote in a letter to Trump.

"These supply chain shocks are expected to drive already record-high input prices even higher at a time when farm margins are already extremely tight and many farmers are underwater," AFBF said.

Duvall explained that disruptions to farmers' fertilizer supply are particularly difficult alongside rising energy prices.

"Farmers would then raise prices on their yields, which directly affect households via higher charges at supermarkets and restaurants," José Torres, Interactive Brokers' senior economist, told Business Insider.

De-escalation could stabilize prices

Torres said that a quick resolution of the war with Iran would reduce uncertainty and help stabilize fertilizer prices, reducing inflation risks.

Investors have already seen how even slight updates on shipping through the Strait can influence the market.

Conflicting comments from the Trump administration regarding the Navy escorting tankers through the passage fueled wild volatility in oil prices on Tuesday.

The potential for food inflation hits the US economy as consumers are especially focused on affordability, which is expected to be a key point in the upcoming midterm elections.

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