Okay, it's been a month since the largest oil  supply disruption in history and brand crude oil   prices are now well over $100 per barrel.  Driving your car has already become very,   very expensive indeed. But sadly, I'm here to tell  you it's going to get quite a bit worse. You see,   just as when after the 2022 Ukraine energy crisis,  your food bill at the grocery store skyrocketed,   this crisis will sadly do the same. Indeed, some  fertilizer prices are already up by well over 50%.   But because this will only affect harvests in a  couple of weeks or months, unlike at the gas pump,   you will only start feeling this crisis in your  wallet later. So, when can you expect things   to get more expensive? What types of food are  most at risk? And especially, how bad is this   food crisis going to get? Hey, I'm Yuri. I have a  PhD in economics. And in today's money and macro   briefing, I will answer all of these questions. 

But before getting into that, we first need to   quickly review why Hormuz is so crucial for global  food prices. Because while Ukraine is famously the   grain basket of Europe, last time I checked, not  that many crops were grown in the middle of the   desert. So then, why is the Strait of Hormuz so  essential for global food prices? In a nutshell,   it's about four types of ships that are stuck in  the Persian Gulf. The first are ships carrying oil   and these are going to farms all around the world.  The second are ships carrying natural gas mainly   from Qatar. And then the third are ships carrying  sulfur to for example fertilizer plants in   Morocco. And finally the fourth are those carrying  about 1/3 of the global fertilizer supply. The way   these four types of ships will affect your grocery  prices are as follows. First, fuel costs are one   of the main costs at mechanized farms. And of  course, they're also crucial in transporting your   food to the supermarket. Second, at a high level,  there are essentially three types of fertilizers.   There are nitrogen fertilizers, phosphate,  and potach. And potach well that is largely   unaffected. However, nitrogen fertilizers are made  using natural gas and nitrogen fertilizer plants   in Europe and India rely heavily on cheap natural  gas imports from the Gulf for their production. So   right now they are facing higher production costs  which will translate of course into higher prices   for these fertilizers for farmers which will then  ultimately translate into higher food prices.   Third, to make all of that even worse, about 44%  of world sulfur exports pass through the straight   of Hormuz, which is a major component needed  to make phosphate fertilizers in places like   especially Morocco. So again they will face higher  costs to make fertilizers which will be translated   into higher fertilizer prices for farmers all  over the world. Finally this region does not only   provide inputs for fertilizer factories elsewhere.  Saudi Arabia, Qatar and Iran itself are also three   of the top exporters of nitrogen-based fertilizers  like urea accounting for around 1/3 of global   trade. So the blockade has basically removed  around 20% of ready-to-use fertilizers from global   markets. And then to make matters even worse,  farming is an extremely competitive business.   Farms have almost zero profit margins. So  higher fertilizer and higher energy prices   at the same time. It immediately makes a lot  of farms unprofitable, meaning that they will   have to make difficult decisions. They can buy  fertilizer at astronomical prices and try to pass   the increased costs onto the consumer or they can  plant less and accept a smaller harvest that year.   All roads lead to the same outcome, which  is a higher grocery bill for all of us. So,  

food price inflation, when can we expect prices   to start going up? Answering this question is   very tricky indeed. You see, these three types  of fertilizers are not all affected the same, but   they are mostly used together at different stages  of the crop-growing process. And crop growing   happens globally in different seasons. And to  make matters even more complicated, crop growing   happens globally in different seasons. Therefore,  instead of trying to model this ourselves, we have   relied on food system experts like Raj Patel  to give us an idea. And according to him, the   current timing of the closure of the straight of  Hormuz and different planting seasons all across   the world actually creates a predictable timeline  of food price inflation. If we look at grains and   bread prices for example, it's a matter of weeks.  Then if we look at products like egg and dairy,   it's a matter of months. And finally, after about  five months, we will start seeing the so-called   protein spike, which means that pork and broiler  chickens will become significantly more expensive   because the corn and other feed stock prices will  go up and these are used to feed them and so that   will no longer be affordable. Yes, that sounds 

rather scary. But what does it mean for your   grocery bill? Because you don't only buy these  products. How much will food prices go up? Again,   because of the complexity of global food supply  chains, we have relied on expert predictions here,   which can vary quite a bit and will of course  depend heavily on two other things. Number one,   where you are in the world. Some countries will be  hit harder than others, and number two, how long   the war will last. According to the UK's Institute  of Grocery Distribution, if the disruption lasts a   few months, food inflation would increase by  roughly 1 percentage point due to the rising   energy costs alone. But if it lasts longer and  if oil prices go up by 150% and gas by 250,   food inflation purely due to energy could rise by  about 2.5 percentage points in the UK. However,   that is just energy because in the UK most farmers  have already locked in fertilizer prices for the   upcoming year. If you live in a country where  they did not do that, then according to Stone X,   fertilizer shocks could add up to two to four  percentage points extra to food inflation. Now,   notably, this does not take into account yet  rising interest rates, which will also greatly   affect farmers. That aside, on average, the  crisis will likely lead, and this is still very   uncertain, to a grocery bill that is about 3 to 6%  higher by the end of the year. So, what this means   is that if your groceries were already expected  to rise by 3%, because there was already high   food inflation, the war could push that increase  much higher. Your total food bill could now go up   by 6 to 9% instead. And such a massive increase in  just a year could especially happen if countries   follow China in banning fertilizer exports  to protect their own consumers. In that case,   food prices may rise quite a lot more in certain  countries. But of course, a lot of that will  

depend on the agricultural season and on how   your government will react. They may decide to   subsidize food prices. So which countries are the  most vulnerable? We don't know fully, but just to   get an idea, according to the UN, some of the most  vulnerable nations right now are those where the   seasonal timing is very bad. Like in particularly  Sri Lanka where the Maha rice harvest is underway.   In Bangladesh, there will also be big problems  because they have the critical boro rice season.   India also faces big problems because of reduced  domestic fertilizer productions ahead of the car   reef season. Another set of countries that could  be in serious serious trouble are those that rely   heavily on food imports where for example Egypt  is famously very much reliant on wheat imports and   already also Sudan which already has a massive  food insecurity crisis. Other countries that   are very vulnerable are fertilizer importers such  as for example the East African nations and also   very crucially Brazil which has become one of the  biggest food exporters in the world but is highly   highly reliant on fertilizer imports and if prices  in Brazil are driven up then the cost of meat,   grains and basic staples everywhere will soon  follow. So in conclusion, to me this fertilizer  

crisis really highlights that the global economy   is facing a multi crisis due to the US-Israel   attack on Iran and consequent closure of the  strait of Hormuz. Now I've already talked about   the direct energy market impact in another video.  I've talked about the impact on Gulf economies in   particular and I'm planning to make another video  soon to highlight the broader economic impact on   emerging markets because as we've seen in this  video they are especially vulnerable and add   to that they that they rely heavily on energy  imports and also on Gulf money. Honestly, it's   looking really bad for a lot of these countries.  Now, if you have not seen my other videos yet,   go check them out. And if there is another angle  that I have not mentioned yet, like the airline   crisis, Russia's perspective, Europe, the US, let  me know what you want to see next in the comments   below. And in the meantime, if you want to dig  deeper, I highly recommend you check out the   excellent analysis by our advertising sponsor,  The Economist, which I always check out for the   research process of my video. For example, their  coverage of how the Russia-Ukraine wars sent and   fertilizer prices soaring really helped me  understand how quickly disruptions in one   region can cascade through global supply chains.  At the same time, they also dig into lesser-known   but fascinating dynamics like how Iranian  firms have developed surprisingly creative   ways to bypass sanctions even in something as  mundane as vegetable exports. And if you want   a more direct look at what an Iran war could mean  for energy markets and the wider economy, they've   also got a podcast episode that breaks that down  all clearly that I will link in the comments. As   these examples show, The Economist delivers  insights that help you see the bigger picture   and think for yourself. This is why I almost  always rely on their analysis for my research,   and it's why I highly recommend you subscribe.  Indeed, I'm excited to say that they are offering   a special 35% discount for money and macro  viewers right now. Whether you prefer their daily   journalism in the Economist app or you're like  me and enjoy catching up on the global economy   over the weekend with a cup of coffee and the  print edition, you'll always stay on top of the   latest global developments and support journalism  that values factual information, integrity, and   an independent point of view. So, don't miss out.  Click the link in the description or top comment   below or head over to economist.com/moneymackro  to claim your exclusive 35% discount today.