How the Middle East Conflict Could Disrupt Global Food Markets and Trade - Devdiscourse
How the Middle East Conflict Could Disrupt Global Food Markets and Trade An OECD-FAO study warns that the 2026 Middle East conflict could increase global food prices by raising energy and fertiliser costs, with the strongest impacts likely in fertiliser-importing developing countries rather than through direct food shortages. The report calls for diversified fertiliser supply chains, flexible biofuel policies, stronger social protection systems and greater investment in agricultural resilience to protect food security and economic stability. A new report from the Organisation for Economic Co-operation and Development (OECD) and the Food and Agriculture Organization (FAO) warns that the 2026 conflict in the Middle East could reshape global agricultural markets through rising energy and fertiliser costs, highlighting vulnerabilities that policymakers, development institutions and agribusinesses can no longer afford to ignore. Although the Middle East contributes only 0.4% of global agricultural production and 3% of global agricultural trade, the region remains central to global energy supply, accounting for 34% of world crude oil exports and 19% of liquefied natural gas (LNG) trade. Disruptions around the Strait of Hormuz, through which nearly 25% of global seaborne oil trade passes, have already pushed oil prices from around USD 67 per barrel in February 2026 to a peak of USD 138 per barrel in April, triggering concerns about a new wave of food inflation. Fertiliser Shock Emerges as Biggest Threat The OECD's modelling suggests that the most significant impact on agriculture will not come from direct disruptions to food production but through fertiliser markets. The Gulf region supplies approximately 35% of global urea exports, 25% of diammonium phosphate exports, 20% of ammonia exports, and 40% of sulphur used in fertiliser production. As natural gas prices surged following the conflict, fertiliser prices rose even faster than energy prices, increasing production costs across major agricultural economies. Under the OECD's central scenario, where oil prices rise to USD 115 per barrel, global fertiliser prices increase by 47%, leading to higher production costs and reduced fertiliser application rates. The resulting impact on crop production is particularly severe in countries heavily dependent on imported fertilisers. Cereal production is projected to decline by approximately 5% in South Africa, 3% in Thailand and Turkey, and around 2% in India during 2026-27. For policymakers, the findings underscore the risks of concentrated fertiliser supply chains and highlight the need for diversified sourcing strategies, domestic production capacity, and strategic fertiliser reserves. Food Prices Rise Despite Ample Grain Supplies Unlike the 2022 food crisis triggered by Russia's invasion of Ukraine, the current shock is occurring at a time when global grain stocks remain relatively comfortable. This provides an important buffer against extreme food price spikes. Nevertheless, the OECD projects that average global agricultural commodity prices could rise by 4.5% in 2026 and 8.3% in 2027 under the oil shock scenario. Wheat, one of the most fertiliser-intensive crops, is expected to experience the strongest price increases, while livestock sectors face indirect impacts through higher feed costs. The delayed nature of the shock is particularly important. Many farmers secured fertiliser supplies before the conflict escalated, meaning the full impact on yields and production is expected to materialise during subsequent planting seasons rather than immediately. For governments, this creates a critical policy window. Interventions introduced now can help prevent future production declines and reduce the risk of prolonged food inflation. Development Implications for Low-Income Countries The report carries significant implications for international development agencies and humanitarian organisations. According to the OECD analysis, average calorie intake could decline by up to 1.7% in parts of Sub-Saharan Africa and Southern Asia, regions already facing high levels of food insecurity and undernourishment. While global price increases may appear moderate, the burden falls disproportionately on low-income households, which spend a larger share of their income on food. Rising fertiliser costs, weaker agricultural production, and higher consumer prices could further strain fragile economies and increase demand for social protection programmes. For development partners such as the World Bank, regional development banks, IFAD, and donor agencies, the findings reinforce the need to support fertiliser access programmes, strengthen agricultural resilience, expand safety nets, and invest in climate-smart farming technologies that reduce dependence on expensive inputs. The report also suggests greater investment in regional fertiliser manufacturing and distribution networks, particularly across Africa and South Asia, where import dependence remains high. Biofuel Policies Present Both Opportunity and Risk A second scenario examined by the OECD assesses the impact of a temporary 10% increase in biofuel mandates alongside the oil price shock. The findings show that higher biofuel demand can help countries reduce dependence on fossil fuels, improving energy security during periods of geopolitical uncertainty. However, it also increases demand for agricultural feedstocks such as maize, sugarcane, soybeans, and vegetable oils. The impact varies considerably across commodities. Additional biofuel mandates raise maize prices by approximately 3.3%, soybean prices by 2.9%, and vegetable oil prices by 8.2%. The sharp rise in vegetable oil prices reflects already tight market conditions and growing competition between food, feed and fuel uses. For governments pursuing renewable energy targets, the study highlights the importance of flexible biofuel policies that can adapt to market conditions. Rigid mandate increases during periods of food market stress could unintentionally exacerbate inflation and food security challenges. Private Sector Faces New Risks and Investment Opportunities The findings are equally relevant for private-sector stakeholders. Fertiliser producers, agricultural input suppliers, and logistics firms may benefit from rising demand and supply diversification efforts. Companies involved in domestic fertiliser production, storage infrastructure, and supply-chain management could see significant investment opportunities as governments seek to strengthen resilience. At the same time, food processors, livestock producers, and agribusiness firms face increased exposure to input-cost volatility. Higher fertiliser, feed, and transport costs may squeeze margins and increase operational risks. Biofuel producers could benefit from stronger policy support and higher demand, particularly in major markets such as Brazil, the United States, the European Union and India. However, investors must also consider growing scrutiny of food-versus-fuel trade-offs and potential regulatory adjustments. Building Resilient Food and Energy Systems The OECD concludes that future food shocks are increasingly likely to originate from energy and input markets rather than from direct agricultural disruptions. The study calls for stronger international co-operation, diversified fertiliser supply chains, improved market transparency, and carefully calibrated biofuel policies. For policymakers, the message is clear: food security can no longer be addressed in isolation from energy security. For development partners, strengthening resilience in fertiliser and agricultural systems will be critical to protecting vulnerable populations. For businesses, the evolving landscape presents both risks and opportunities as governments and markets adapt to a more interconnected and geopolitically uncertain world. The report ultimately serves as a reminder that in today's global economy, a disruption in an energy corridor can quickly become a food-security challenge, making resilience across food, energy and trade systems a strategic priority for the decade ahead. - FIRST PUBLISHED IN: - Devdiscourse