Food for thought: The global fertilizer supply shock

Many farmers worldwide rely on agricultural fertilizers derived from urea, ammonia and potash to grow their crops. The Middle East is a major supplier of these inputs, accounting for ~42% of global urea and 27% of global ammonia exports. However, the closure of the Strait of Hormuz — a critical maritime artery — has upended fertilizer supply chains during planting seasons for staple crops like corn, soybeans, rice, wheat and vegetables.  

“Since the start of the conflict, we have seen disruptions to nitrogen fertilizer supply out of the Middle East, with potash shipments so far intact. To this end, global nitrogen fertilizer benchmarks have reacted with significant increases — up 25 to 50% from the end of February, depending on the product and region — whereas potash prices have remained little changed,” said Angelina Glazova from the European Chemicals equity research team at J.P. Morgan. “For now, we assume that elevated prices will hold up through the second quarter of 2026, with a correction to follow in the second half of the year reflecting the risks of demand destruction owing to high prices, as well as the possibility of supply normalization, to an extent.”  

This surge in fertilizer prices, if sustained, is likely to feed through to global food inflation by raising input costs and lowering crop yields, particularly in economies that are highly dependent on fertilizer imports. In Australia, 27% of vegetable growers have already cut production due to fertilizer shortages. “The combination of reduced planting intentions, potential yield degradation and doubled input costs is likely to flow through to retail food prices through late 2026 and into 2027,” said Bryan Raymond, head of the Australian Consumer team at J.P. Morgan.

“This could lift global food inflation temporarily to 4–5%, but we expect the impact to show up with a considerable lag,” added Nora Szentivanyi, senior global economist at J.P. Morgan.

Sky-high: Flight prices could continue to soar

The Iran conflict is also disrupting the global aviation industry. The surge in oil prices is translating into higher jet fuel costs, and some carriers have been forced to cut capacity due to airspace closures across the Middle East. As a result, airlines are adjusting their pricing strategies accordingly.  

U.S. carriers have been relatively insulated from the conflict due to their limited exposure to the Middle East, which represents less than 1% of their overall capacity — though spiking jet fuel prices are an increasingly pressing concern. However, Chase card spending data shows that airline spending in the U.S. was up around 10.6% month-to-date through March 20 versus the same period in 2025, likely due to rising airfares.

Airlines in the Gulf region and Asia are acutely feeling the strain. “In mid-March, fares for Asia–Europe flights were up around 176% week-over-week as the suspension of operations by major Middle Eastern carriers removed more than 10% of daily international capacity,” noted Karen Li, head of Asia Infrastructure, Industrial & Transport Research at J.P. Morgan. Full-service carriers are leveraging their pricing power to partially pass higher costs on to consumers via fuel surcharges, while low-cost carriers — operating on thinner margins with limited pricing power — face a more binary outcome of either absorbing unsustainable costs or grounding capacity outright. Demand for non-Middle East routes has held up, but carriers have cautioned that this resilience is unsustainable if jet fuel prices remain elevated for an extended period.

In Europe, airlines are seeing greater demand for some intra-European routes due to substitution effects near term, as travelers avoid destinations in the Middle East and surrounding countries. “This summer, European airline capacity is expected to accelerate to +6% for short-haul, while long-haul is expected to decrease to +5%,” said Harry Gowers, lead analyst for European Airlines at J.P. Morgan. “Direct exposure to the Middle East is limited and the indirect impact is mixed, with short-term revenue benefiting from demand substitution. However, a sustained conflict could lead to structural demand loss from higher airfares as a result of higher fuel prices.” Indeed, European airline capacity may start to be reduced longer term due to increased costs for jet fuel and concerns over its availability.

In recent weeks, flight prices in Brazil have increased more than 20% compared with a year earlier, driven by elevated jet fuel costs. “Airlines are prioritizing fare increases, but have acknowledged that capacity adjustments could also be a lever to pull in order to prioritize profitability,” said Guilherme Mendes, who leads the LatAm Transportation Equity Research team at J.P. Morgan. “Overall, the short-term outlook for airlines in Latin America remains closely tied to jet fuel prices, which account for over 30% of costs.”

The chips are down: A potential semiconductor shortage  

Attention has also turned toward the semiconductor industry, especially as Taiwan — which produces more than 90% of the world’s most advanced chips — depends heavily on energy imports from the Middle East. In particular, it relies on liquefied natural gas (LNG) for its electricity, much of which is supplied by Qatar. However, Qatar’s LNG output has taken a hit, with attacks curtailing 17% of its export capacity. While Taiwan has said it has enough stockpiles of LNG to meet its needs through April, a prolonged energy crunch could constrain semiconductor production thereafter. 

“Alternate suppliers of LNG as well as alternate sources of energy, such as coal-fired plants, have been activated, but these could come under stress during the peak summer months,” said Aditya Srinath, who covers Asia ex-Japan equity research at J.P. Morgan. “If the conflict lasts into August or September, we may see more extreme measures like power rationing being instituted, which could start disrupting the semiconductor manufacturing food chain.”