Strait of Hormuz Disruption Could Spike Global Food Prices for Years

In an exclusive conversation with ANI, Danny Quah, Li Ka Shing Professor In Economics, Lee Kuan Yew School Of Public Policy, National University of Singapore, said the closure of the Strait of Hormuz has both immediate and long-term consequences, particularly for global agriculture and food supply.

"The Strait of Hormuz being closed has two effects, one immediate and then the other longer term. The first immediate effect is that actually the Strait of Hormuz sees passage not just of oil and gas, but also of minerals that go into making fertilizer," he said.

He explained that any disruption in fertilizer availability can directly impact agricultural production, as farming decisions are made well in advance.

"If there's a fertilizer shortage everywhere in the world, the way agricultural production works is plants are made a year in advance. So if you are unable to condition on there being sufficient fertilizer going ahead, you will start curtailing supply right away," he added.

The professor warned that the effects of the current disruption may be felt over several years. "We will be looking ahead two, three, four, five years where food supplies are now going to be curtailed and will be priced higher," he said, adding that vulnerable populations would be most at risk.

He described the situation as a classic supply shock. "It is a restriction, a critical ingredient in how the world makes things... it's a supply shock that will raise prices and reduce supply," he said.

He added that this could lead to a scenario of slower growth and rising prices, commonly referred to as "stagflation."

On the global impact, he said the disruption would affect all countries, though to varying degrees. "The food chain is one that means that when food gets traded across the world... it will affect everyone, but in the short run, it will affect some countries more than most," he said.

He noted that even countries that are not heavily dependent on agriculture will face higher food import costs and tighter supplies. The situation, he added, is similar to concerns seen during the COVID-19 pandemic when food supply chains were disrupted globally.

On India, he said the impact would be significant through two channels. First, India's agriculture depends on fertilizers that pass through the Strait of Hormuz, which could affect future crop production. Second, food preparation depends on fuel such as natural gas, and disruptions could impact households.

"A large part of Indian agriculture production does call on fertilizer that comes through the Strait of Hormuz ... that will have a long-term ripple dynamic effect on food supplies in India," he said.

As a solution, he suggested diversification of energy supplies. He noted that countries in Southeast Asia import natural gas not only from the Gulf but also from the United States and Australia.

Overall, he emphasized that the current disruption highlights the need for stronger supply chain resilience and diversification to manage future risks to food and energy security.

- ANI