The present-day conflict in the Middle East has further exposed structural fragility within global energy supply chains, increasing the dangers of dependency on regions that can be characterised as having volatile geopolitical environments.
Conflicts usually create price spikes in energy, however, high ongoing prices indicate persistent issues that have yet to be resolved. Approximately 20-21 million barrels of oil flow daily through the Strait of Hormuz, representing roughly 20% of the world’s oil supply.
In the past, even a small disturbance in this region has produced immediate price hikes. Since the beginning of the current situation, the price of Brent Crude oil has varied from $95-$115 per barrel compared to an average price for 2022 between $70-$80 per barrel.
Moreover, liquefied natural gas (LNG) prices in Asia have increased by nearly 30% over the last 6 months. Energy costs are typically incorporated into all sectors of the economy and therefore, energy price change has an immediate impact on other areas of the economy.
A prime example of this linkage is illustrated clearly by the fertiliser sector. Approximately 70-80% of the costs associated with producing ammonia are dependent on natural gas prices.
As a result, global urea prices have increased from about $300 per metric tonne in early 2021 to roughly $450 per metric tonne as of 2021. Phosphate and potash prices have also increased by 20-35% resulting in severely heightened input costs for farmers coinciding with already marginal profits.
India is in a uniquely vulnerable position as approximately 85% of its crude oil originates outside its boundaries and nearly 50% of its natural gas is imported.
India imports nearly all its potash (about 100%) and a large portion (around 85%) of its phosphate fertilisers, so it depends on fertiliser imports. The financial implications of this dependency are severe, as reflected in India’s fertiliser subsidy bill, which has already surpassed ₹1.75 lakh crore and could potentially rise to ₹2.2 lakh crore if current price levels continue.
Fuel subsidies and tax adjustments decrease government revenue and limit fiscal flexibility.
The implications for global food security are dire, as determined by international organisations. A 10% increase in fertiliser prices can result in reduced crop yields by 2–5%, assuming farmers cut their use.
For low-income countries, where fertiliser use is already below optimal levels, yield loss may be as high as 15–25%. The Food and Agriculture Organisation estimates that more than 735 million people suffered from chronic hunger in 2023, and that number will rise dramatically if global inflation begins to rise rapidly.
Several countries saw wheat and rice prices rise 12–18% year over year.
The impacts of the current crisis extend well beyond employment and growth. Cost pressures on energy-intensive industries (e.g., chemicals, transportation and manufacturing) could lead to layoffs.
An International Monetary Fund study estimated that, if oil prices were to continue increasing by $10 per barrel over the long term, global GDP growth would decrease by about 0.1 to 0.2 percentage points. In the case of oil-importing developing economies, the impact is generally twice as large.
Despite the current crisis being a very significant global challenge, the vast majority of major international institutions have responded mainly on a reactive basis.
Although emergency financing/short-term stabilisation mechanisms may be necessary in the short term, they do not address the underlying causes. Globally, renewable energy investments are far below what is needed; in 2025, global clean energy investments reached approximately $1.8 trillion, but to achieve climate and energy security objectives (i.e., reaching 2030 goals),
they will need to reach over $4 trillion annually. Similarly, innovations (e.g., nano-fertilisers and precision agriculture) that can reduce fertiliser usage by 20-30% are not being widely used due to a lack of scaling and/or policy support.
The geopolitical aspect adds further complicating factors. Many countries have strategically maintained strategic petroleum reserves that only cover 60 to 90 days of import volumes, meaning that long-term energy security cannot be guaranteed.
If the world does not diversify its energy supply sources aggressively and invest in new agricultural innovations, and continue to strengthen global cooperation, the world will continue to experience high volatility; each geopolitical shock will translate to economic stress for already marginalised populations.
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