Energy costs surge: Why the food-price shock could be worse now

UBS (Swiss bank UBS Group AG) warned that the recent surge in energy prices risks transmitting into fertilizer markets and then into global food prices, noting that higher input costs for farmers can feed through to consumers and inflation expectations.

The development follows a series of disruptions in the Middle East, including missile strikes on major energy hubs such as Qatar’s Ras Laffan industrial area, which have temporarily cut LNG output and prompted market repricing for oil and gas. Those disruptions have raised freight and insurance costs for shipments through the Strait of Hormuz and increased short‑term supply risk premia.

Market moves underline the shock’s scale: Brent and WTI futures have posted sharp gains as inventories draw down and dealers reassess downside supply risks; UBS highlighted that continued flow disruptions could drive crude inventories to record lows and push prices substantially higher, which in turn raises the cost base for fertilizer producers who rely on natural gas.

Higher fertilizer costs are a direct channel into food prices because nitrogen and other nutrients are critical to yields; UBS and market participants point to a sizeable upstream cost pass‑through that could raise spot and wholesale food prices if input scarcity or elevated prices persist through planting and growing seasons. The impact would be most acute in food‑importing and low‑income countries where pass‑through rates are higher.

Analysts say outcomes hinge on the duration and severity of the energy shock: a rapid easing of supply disruptions would limit second‑round effects, while a prolonged shortage could force central banks to reassess inflation trajectories and delay policy easing. For investors and policy makers alike, monitoring LNG and natural gas flows, fertilizer availability and crop‑season timelines will be essential to gauge the scale of the emerging food‑price shock.