FAO Warns of "Cascading Effect" in Price Crisis Due to Ormuz Closure
The closure of the Strait of Hormuz could cause an economic crisis more serious than that caused by COVID-19 if the situation lasts more than two months, due to the "cascading effect" of rising food prices, warns the chief economist of the FAO, Peruvian Máximo Torero. AFP "If the Strait of Hormuz [...]
TL;DR
- A closure of the Strait of Hormuz lasting over two months could lead to a food price crisis more severe than COVID-19 due to a cascading effect.
- The Strait of Hormuz is crucial for global trade, handling 35% of world oil, 20-30% of fertilizers, 20% of natural gas, and 45% of sulfur.
- Fertilizer prices have already increased by 50% in the first month of the conflict, heavily impacting countries like Bangladesh, India, Sri Lanka, Sudan, and Kenya.
- If the conflict continues, major food exporters such as Brazil, Argentina, the US, and Australia could be forced to reduce production due to rising costs and low margins.
- The FAO's food price index rose 2.4% in March compared to February, and 1% compared to March 2025.
- Other factors exacerbating the situation include attacks on energy and desalination plants and a potential decrease in food demand from Gulf countries.
- While producers are feeling the immediate effects, consumers will likely see the impact on their wallets by the end of the year.
- The FAO stresses the importance of reopening the Strait of Hormuz to resolve the input cost problem.
- Lessons learned include the benefit of a diversified global energy mix, which mitigates the impact compared to a decade ago.
- There is a call to invest in sustainable agriculture with diverse energy and input sources to build resilience.