Iran conflict threatens stability of agriculture supply chain

The threat to a key choke point in global shipping from the conflict in the Middle East has pulled energy and soybean oil prices higher and has the potential to affect price movements in other commodities.

The United States, in an alliance with Israel, attacked targets in Iran on Feb. 28. In response, Iran began broadcasting over-the-air messages to ships approaching passage through the Strait of Hormuz stating no ships were allowed to pass and threatening to burn any vessels that attempted to do so.

Hormuz, a 21-mile-wide strait connecting the Persian Gulf to the Gulf of Oman and the Arabian Sea, sits between Iran to the north and a peninsula to its south controlled by United Arab Emirates and an exclave of Oman. The strait serves as the sole point of egress for ships departing the Persian Gulf ports in Iraq, Kuwait, Bahrain, Qatar and United Arab Emirates.

The strait is essential for global energy flows. About 3,000 ships per month depart the Persian Gulf ports headed for docks in China, India, Japan and South Korea. Most of the vessels transport crude oil, refined petroleum or liquid natural gas.

Refined petroleum exports through the strait equate to about 20 million barrels of oil a day. That compares with onshore pipelines from the region, which have a maximum capacity of about 3 million barrels per day. There is no onshore system to transport liquid natural gas, so the commodity must be transported by ship through the strait.

Ship traffic through the strait was greatly reduced on Feb. 28 and slowed further on March 1. Tankers staging on both sides of the passage numbered 150 by March 4. The White House responded to Iran’s threat to ships in the strait saying the United States had destroyed the Iranian Navy from the air, implying Iran’s threat was toothless. President Donald Trump said on social media that the US Navy would, if necessary, escort ships through the passage and that the United States Development Finance Corp. would provide to all shipping lines “at a very reasonable price, political risk insurance and guarantees for the financial security of all maritime trade, especially energy, traveling through the Gulf.”