Within a week of the 28 February launch of US attacks, in partnership with Israel, on Iran, US president Donald Trump said: “The war is very complete, pretty much.”

For the world, now three months on from the outbreak of hostilities, it is very clear that neither the war, nor the effects of it are anywhere close to complete.

The closure of the Strait of Hormuz since the early stages of the war has been described as the “greatest global energy security challenge in history” by Fatih Birol, the head of the International Energy Agency.

There have been false starts in negotiations and hopes of a resolution over the last three months, but as of the beginning of June, the prospect for a full and rapid end to the conflict and a reopening of the key waterway remains bleak.

While the varying hopes of an end to the conflict, driven by comments from Trump and Iran, are reflected in the day-to-day volatility seen in global benchmark prices, the warnings about a more meaningful move higher in energy prices are getting louder.

When the Strait of Hormuz was first closed some analysts were predicting oil prices of $150 (€130) a barrel within months. That hasn’t come to pass, which might suggest that those predictions were overall pessimistic and the world has been able to manage a substantial reduction in supply surprisingly well.

However, it is important to see how the world is managing that reduction to get an idea of where prices might be heading in the next few weeks and months. Much of the gap from the reduction in supply from the Gulf region is being filled from global strategic oil reserves. This has worked well to date, but – much like living on your savings – it can only be a temporary measure at best.

Recently Neil Chapman, a senior vice-president of Exxon warned that the world is “approaching unheard-of inventory levels. I mean really, really low levels”.

He added that once those levels are reached, which will be in the next few weeks, then “you’ll see prices shoot up”. Mike Wirth, CEO of Chevron said that he expects “upward pressure” on oil prices into June and July.

Head of the United Arab Emirates state oil company Adnoc warned that even if there was a full reopening of the Strait, it would take at least four months to get back to 80% of pre-conflict oil flows.

The drawdown of stockpiles also means that once the shipping route is reopened, countries will be trying to rebuild those reserves which will serve to increase demand and hold prices higher.

In trying to figure out what the longer-term effects could be for Irish farmers from the energy crisis, we can look at what happened in the wake of the Russian invasion of Ukraine. In the years before that conflict began, white diesel prices stayed within a range between €1.00 and €1.50 per litre.

There was a significant spike in the immediate aftermath of the outbreak of the war, with prices then settling into a new range between €1.60 and €1.80 per litre. While prices did fall in 2023, they never returned to their pre-war level (see figure 1).

The worst of the increase in diesel prices since March has been cushioned somewhat by temporary government measures, and for farmers, the diesel rebate scheme which closed to applications this week.

If, however, the warnings about the price outlook for oil are correct, we could see another hike in diesel costs at a time when government has little further room to ease the burden.

Also, as the measures introduced on reducing fuel taxes are temporary, they will have to be reversed at some stage.

The other area where there is a lot of uncertainty is over the global supply of fertiliser.

While Ireland, and the EU, do not rely on the Gulf region for much of what is used here, the increase in global prices certainly does have a knock-on effect for Irish agriculture. The initial direct effect of the closure of the Strait of Hormuz was seen in a reduction in the availability of urea, with around a third of global supply travelling through the waterway. In recent weeks, however, a new threat has become increasingly obvious. Around half of the world’s trade in sulphur was shipped along that route before the conflict began.

Prices of the commodity have jumped from $150/t (€130/t) a year ago to as much as $900/t (€775/t) today, according to the Financial Times. Sulphur is needed to make phosphate fertilisers, with much of the manufacturing happening in Morocco which holds much of the world’s reserves of phosphate rock.

OCP Group, based in Morocco and the world’s biggest phosphate producer, say that they have enough sulphur in stock to continue producing until next month.

Comment

When the conflict in the Gulf started, the hope was that it would be over quickly and that the fallout to the rest of the world would be limited. However, now three months into hostilities, and with the Strait of Hormuz remaining closed, it is clear that significant damage has been done to the global economy and the scars from it will take a long time to heal.

For Irish farmers these scars will be seen in higher-for-longer energy costs, in increased fertiliser costs and continued fears about availability of product, and well as the overall higher inflation across all inputs which will be driven by the energy crisis. The latest data from the Central Statistics Office showed that energy prices at the end of May were 11.9% higher that they were a year ago.

All indications suggest that trend is not going to reverse any time soon. We are now seeing electricity suppliers increasing their rates, blaming their increased input costs.

Unfortunately farmers are unable to pass their costs onto their customers, so are left in the position of having to increasingly tighten their belts, and hope that both a resolution to the conflict is found quickly and that the predictions about long-term supply shortages are proven wrong.