Iran war risks long-term shortages, price shocks for global energy and fertilizer markets

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A truce in the Middle East conflict would not spell a quick return to business as usual for movement of the world’s energy and commodities, and that could mean persistent shortages and high prices for a wide range of products.

Heavy bombing by the United States and Israel, and retaliatory attacks by Iran on its Persian Gulf neighbours, have shut down output and wrought unprecedented damage to oil and gas production and infrastructure, including major refineries and liquefied natural gas plants.

This heightens the risks of long-term disruption of supply chains for petroleum products such as diesel and jet fuel, as well as petrochemicals and fertilizer.

“What makes this crisis different is just how wide-ranging across the commodity space it is,” said Tom Liles, senior vice-president, upstream research, at Rystad Energy.

Gas field strikes threaten to worsen Asian energy woes from Iran war

The longer the conflict drags on the more difficult it will be to restring the supply chains, but there is nothing in history of this magnitude to act as a guide, Mr. Liles said.

About 11.4 million barrels a day, consisting of crude oil, condensate and gas-to-liquids production, are offline because facilities are damaged or wells are shut off. Adding lost LNG volumes, that rises to the equivalent of 15.1 million barrels a day, he said.

U.S. President Donald Trump on Monday said he was backing down on a threat he had made less than two days earlier to blow up Iran’s power network unless the country reopened the Strait of Hormuz, through which a fifth of the world’s crude oil and liquefied natural gas flows.

In a social media message, he said the U.S. and Iran had held constructive talks over the weekend and he would postpone any strikes on the power stations for five days while the two countries negotiated “a complete and total resolution of our hostilities.”

Oil prices tumbled after the missive, which traders parsed as a potential turning point in the war. International benchmark Brent settled down 11 per cent at US$99.94, its lowest in a week.

Iran war threatens to cut off another key economic flow from the Gulf: remittances

Oil facilities in the Gulf have sustained significant damage. Saudi Arabia said its SAMREF refinery in the Red Sea port city of Yanbu was hit by Iran. Iran has also struck facilities in Qatar, United Arab Emirates and Kuwait, where two refineries were attacked.

Some of the most extensive damage has been reported in Qatar, the world’s second-largest producer of LNG. Its massive Ras Laffan LNG Hub sustained heavy damage last week after multiple attacks by Iran. That has resulted in the loss of as much as a quarter of Qatar’s LNG production for 2026.

Research house Wood Mackenzie initially expected output to ramp back up to capacity in four to six weeks after the war.

“That outlook now appears increasingly unlikely,” Kristy Kramer, WoodMac’s head of LNG strategy and market development, said in a report. “A more prolonged outage would further tighten the global supply and keep prices elevated for longer.”

Asia faces the greatest exposure to Qatari LNG, with about 90 per cent of cargoes shipped there last year, WoodMac noted.

The global impact is much wider, however. The strikes on natural gas facilities in the Gulf will have ripple effects on fertilizer prices and food availability.

Natural gas is a key input in the production of urea, the most widely used nitrogen-based fertilizer, and production across the Middle East and Asia has stalled owing to the LNG shortage.

Fertilizer plants also typically do not have storage space, said Veronica Nigh, senior economist the Fertilizer Institute. The Strait of Hormuz represents one-third of fertilizer trade, and has been closed since the start of the war.

Besides Qatar, plants in Iran, Saudi Arabia, Bahrain and India have shuttered. Pakistan – which depends on Qatar for 99 per cent of its LNG imports – is also likely to stop production as it runs out of locally sourced gas, according to a Bank of Nova Scotia report.

The result will be a surge in demand for urea from states like Pakistan which – when adequately supplied with LNG – are self-sufficient.

Countries with adequate supplies are responding with export restrictions: Turkey has banned urea exports and there are reports Indonesia will follow suit, while China – which typically restricts fertilizer exports until after its planting season – is likely to extend its bans, said Joshua Mayfield, fertilizer analyst for Hallgarten and Co.

As a result, prices for urea have risen around 45 per cent from prewar levels, said Ms. Nigh.

High global prices will hit Canadian agricultural retailers and farmers trying to secure the last of their inputs needed for spring planting, said Casper Kaastra, chief executive officer of Montreal-based farmer co-operative and retailer Sollio Agriculture.

However, the crisis is unlikely to make a “double-digit impact” in the 2026 fertilizer demand, Mr. Kaastra said. Most of Canada’s fertilizer is already purchased. He is more concerned about the next cycle. The production taken offline will not return quickly.

Should the crisis end tomorrow, prices might fall but the shortage will carry forward, Mr. Mayfield said. It will take time to restore the LNG plants to prewar capacity and, when this happens, fertilizer is unlikely to be a priority. Qatar is more likely to sell its LNG to a market in high demand, such as China, than use it for fertilizer production.

Urea shortages are a “profitability problem for the farm,” said Jean-Philippe Gervais, executive vice-president of strategy and impact and chief economist at Farm Credit Canada. Farmers were already facing high input costs and near-record low crop prices. Should inputs remain high, the costs could eventually be borne by the Canadian consumer.

“Always, at the end of the day, this is something that goes back to the plate of the consumer,” Mr. Gervais said.