Center for Economic Analysis

IMPACT OF THE WAR IN IRAN ON THE AGRI-FOOD SYSTEM

By

Bill Knudson

Introduction

On February 28, 2026, U.S. and Israeli forces attacked Iran. This brief paper outlines the impact of the war on agricultural and input markets, particularly fertilizers, diesel, and interest rates. It is difficult to determine when the war will end. A cease fire was announced on April 7, but it remains to be seen if this will lead to a long lasting peace. Prediction markets indicate that the greatest probability is that the war will end before June 30. The longer the war continues, the greater the impact on agricultural markets. A short war with a quick resumption of trade in the region will minimize the impacts of the war.

The war has increased the cost of farming. Fertilizer and diesel prices have increased due the region s importance as an oil and fertilizer producer. Crop prices have also increased somewhat, but in the long term, there is somewhat more uncertainty as to the long term impact on agricultural prices. The potential loss of export markets could reduce the price of U.S. agricultural commodities. Higher input costs improve the profitability of soybeans relative to corn. The net impact of the war is likely lower farm profitability . This, in turn, will increase demand for government assistance to farmers.

Impacts on Input Costs

Nitrogen fertilizer and phosphorus fertilizers are especially impacted by the war. Much of the world s fertilizer and natural gas flows through the Strait of Hormuz, a major shipping lane separating Iran from the Gulf States of the United Arab Emirates and Oman. Approximately 20 percent of global liquid natural gas exports, and 20 to 30 percent of global fertilizer exports go through the straits (Curtis, Virzi, and Welsh). Natural gas is a key input in the production of nitrogen fertilizer. Saudi Arabia and Israel account for about 17 percent of global phosphate fertilizer exports (Curtis, Virzi, and Welsh). From February 27 through March 13, the price of Diammonium Phosphate (DAP) rose from $627.42 a ton to $647.50, an increase of 3.2 percent. The March futures price of urea rose from $465.64 a ton in February 27 to $599.50 on March 13, an increase of 28.7 percent. April urea prices rose from $444.47 on February 27, to $635.00 on March 13, an increase of 42.9 percent. Fertilizer prices were already high due to the war in Ukraine and Chinese restrictions on exports (Werz), and the war in Iran has made the situation worse.

The only good news on the fertilizer front is the fact that many farmers had already purchased fertilizer before the war started. However, moving forward higher fertilizer prices will put pressure on farm profits.

The war has disrupted the global oil market. Twenty seven percent of global oil exports go through the Strait of Hormuz (Curtis, Virzi, and Welsh). The International Energy Agency believes the war has caused the largest oil supply disruption in history (Youssef). Nations in the Gulf region have reduced output by 10 million barrels a day roughly 10 percent of global demand (Youssef). Even if the war were to end quickly, it will take several months for output to return to prewar levels. At least three ships in the Straits of Hormuz are currently disabled which will further likely delay the return of oil shipments to prewar levels. The potential deployment of sea mines will also delay the opening of shipping lanes once the war is over (Curtis, Virzi, and Welsh). As a result of the cease fire on April 7, it appears that the strait is open, but Iran is charging a toll which will increase shipping rates.

April West Intermediate Crude prices rose from $65.15 on February 27 to $99.61 on April 1, an increase of 52.9 percent. The price of diesel fuel has increased dramatically since the beginning of the war. According to the U.S. Energy Information Agency, the price of diesel in the Midwest rose from $3.798 per gallon on February 23 to $5.304 a gallon on April 6; an increase of $1.506 a gallon, or 39.6 percent.

The war has put upward pressure on interest rates. The 10 year T-bill rate has risen from 3.96 percent to 4.29 percent, an increase of 8.3 percent. The 1 year rate has risen from 3.48 percent to 3.67 percent. At its most recent meeting the Board of Governors at the Federal Reserve Board decided to keep its interest rates unchanged. Borrowing costs for farmers are facing upward pressure.

Interest rates will likely remain higher in the long run. The war will increase the size of the federal deficit and keep upward pressure on interest rates. Some estimate that the cost of the war may be as high as $1 billion per day (Werz). Higher deficits will also keep upward pressure on inflation. This is coupled with higher oil prices which place inflationary pressure on a wide range of products will limit the Federal Reserve s ability to lower interest rates.

Impacts on Commodity Prices

The global uncertainty generated by the war has also had little effect on commodity prices. May corn prices rose from $4.48 a bushel in February 27 to $4.47 a bushel on April 8. December futures rose from $4.61 in February 27 to $4.76 in April, an increase of 5.9 percent increase. If the price of oil remains high, this might increase the likelihood of widespread acceptance of E15.

May soybean prices have fallen one cent from the beginning of the war. November futures prices have increased from $11.24 a bushel in February 27 to $11.52 on April 8, an increase of 2.5 percent. Given the relative increase of fertilizer prices compared to crop prices, soybeans may be a more profitable crop to grow in 2026. As is the case with E15, higher diesel prices may increase the demand for biodiesel which will increase the demand for soybean oil.

References

Curtis, E., J. Virzi,, and C. Welsh (2026). Chokepoint: How the War with Iran Threatens Global Food Security. Center for Strategic and International Studies.

Werz, M. (2026). The Iran War s Hidden Front: Food, Water, Fertilizer. Council on Foreign Relations.

Youssef, N. (2026). The Iran War Has Four Stages. We re in the Second. The Atlantic, March 12, 2026.