Editorial | Hormuz and fertiliser

In the month since the United States and Israel attacked Iran – and Tehran’s retaliatory closure of the Strait of Hormuz – the world’s attention, including Jamaica’s – has been primarily on its impact on the price of oil.

Which is understandable. A quarter of the world’s seaborne oil and a fifth of its liquefied natural gas (LNG) pass through the strait – a choke linking the Persian Gulf and the Gulf of Oman and providing the only route to the open seas for several Gulf energy producers, including Kuwait, Qatar, Bahrain and United Arab Emirates (Abu Dhabi).

However, other related dangers also lurk.

With oil ships via the strait down to a trickle, the price of oil gas spiralled sharply upwards. For instance, on Friday, the benchmark Brent crude rose 4.2 per cent, to close at US$112.57 a barrel, or 53 per cent higher than its price on February 27, the day before the bombing of Iran began. West Texas International (WTI) (US benchmark crude) closed at US$99.64, up 5.5 per cent on the day and 45 per cent higher than before the start of the war.

Both benchmark crudes have traded higher and could go higher, market analysts warn, if the fighting is prolonged and the Strait of Hormuz remains closed. US$200 a barrel oil, they say, would not be out of the question by June. In any event, given market sentiments and damage to oil infrastructure in Iran and the Gulf countries, few people believe oil prices will fall back to their pre-war levels, even if the war ends now.

NO GOOD NEWS

None of this is good news for Jamaica, which spends nearly US$2 billion annually on petroleum, despite the recent boast by the finance minister, Fayval Williams, that the country has the reserves (US$6.839 billion in early March) to ride out the shock.

“If we take the gross (rather than the net reserves) and measure it in weeks of goods and services imports, that would be 36 weeks, based on the official figures the Bank of Jamaica published,” Minister Williams told Parliament. “The global international benchmark is 12 weeks, meaning, it’s considered adequate for a country if its gross reserves covers 12 weeks of goods and services imports. Jamaica has 36 weeks. Our NIR is strong!”

Perhaps!

However, the government crafted its budget around an average price of US oil at US$60 per barrel, three-and-half per cent lower than the average price the country paid for oil up to December, and 19.3 per cent below US$74.4 per barrel in 2024-25. Instead, WTI is nearly 40 per cent higher than was projected for the fiscal year that begins on April 1.

These developments suggest that Ms Williams and her technocrats are, or should be, at their econometric models, testing the likely impact of the oil price movements on the government’s fiscal and broader economic projections.

Beyond oil, there is something else related to the halt of traffic through the Strait of Hormuz that the analysts at the finance ministry and the central bank should be plugging into their matrices, the spiralling cost of fertilisers.

While, in Jamaica, the hike in price of oil has been discussed for its likely broad effect on economic activity, little attention has so far been paid to the specifics of fertilisers.

HALTED SHIPMENTS

By most estimates, about a third of the world’s fertiliser is produced in the cluster of countries around the Strait of Hormuz, whose closure, as well as damage to facilities by Iran’s retaliatory bombings, has halted shipments. Qatar Fertiliser Company (QAFCO) is perhaps the world’s largest manufacturer of urea, responsible for over 10 per cent of global suppliers. Its absence from the market makes a difference. Moreover, Asian countries depend on the Gulf region for an estimated one third of their urea supplies, over a half of their sulphur and nearly two-thirds of their ammonia. Added to this, rising prices of energy and source materials have caused fertiliser plants in Bangladesh, Slovakia, Algeria and India to either reduce production or close temporarily.

The upshot: by last week, urea and ammonia prices had jumped, respectively, by 50 per cent and 20 per cent since the start of the war.

The timing of this development is bad for farmers in the Northern Hemisphere, including the United States, who are just entering the planting season for spring crops. Using less fertiliser compromises yields and the higher cost of inputs means less profits for already stretched farmers and-or higher prices to consumers, including those in Jamaica.

Four years ago when Russia invaded Ukraine (both major producers of fertilisers and agricultural commodities), the disruption of supply chains and Western sanctions on Russia led to a jump in prices and rocketing food inflation. Developments in the Middle East haven’t caused, at least not yet, the levels of price escalation that followed the Russia-Ukraine war. But it can happen.

The events of 2022 clearly put agriculture and food security squarely on Jamaica’s agenda. The Middle East war is a clear reminder that this, in addition to escalating investments in renewable energy, remains unfinished business that needs greater aggression.