How the Iran-US-Israel Conflict Could Affect Fertilizer Prices, Employment and the Current Account

The ongoing conflict involving Iran, Israel, and the United States is not only a geopolitical issue but also an economic one. For IB Economics students, this conflict provides a clear real-world example of how global shocks can affect commodity markets, employment, and a country's balance of payments.

One of the most important economic concerns relates to the Strait of Hormuz, a key global shipping route. A large share of the world's oil, natural gas, and chemical products passes through this narrow waterway. Because fertilizers depend heavily on both natural gas (for production) and international shipping (for distribution), disruptions in this region can cause fertilizer prices to increase.

Why Fertilizer Prices May Increase

Nitrogen-based fertilizers such as urea and ammonia are produced using large amounts of natural gas. If conflict disrupts energy markets or raises oil and gas prices, fertilizer producers face higher production costs.

At the same time, military tensions in the Gulf region make shipping riskier and more expensive. Higher insurance costs and fewer ships traveling through the region reduce the supply of fertilizers reaching international markets.

When supply falls while global demand from farmers remains relatively stable, the price of fertilizer rises.

Why This Matters for Agricultural Economies

Fertilizer is a key input in modern agriculture because it increases crop yields and improves soil productivity. When fertilizer prices rise, farmers face higher production costs.

In response, farmers may reduce fertilizer use, plant smaller areas of land, or delay planting decisions. This can lead to lower agricultural output.

Countries that rely heavily on the primary sector, particularly agriculture, are therefore highly vulnerable.

For example, Brazil is one of the world’s largest exporters of agricultural products such as soybeans, coffee, and sugar. However, Brazil imports a large share of its fertilizers. If fertilizer prices increase significantly, farmers may reduce production to control costs. Lower production can reduce labour demand in farming regions, potentially increasing rural unemployment.

Similarly, in Kenya, agriculture employs a large portion of the population and produces important exports such as tea and coffee. If farmers cannot afford higher fertilizer prices, crop yields may fall. Lower output could reduce employment opportunities in farming communities and also affect related industries such as food processing, transport, and export logistics.

Effects on the Current Account

This situation also provides a useful example of how a global supply shock can affect the current account, which is part of a country's balance of payments.

The current account records a country's trade in goods and services with the rest of the world.

Higher fertilizer prices can affect the current account in two main ways.

First, many agricultural economies import fertilizers. If global fertilizer prices rise, the total value of fertilizer imports increases. Even if countries import the same quantity, they must spend more on these imports. This increases the import bill and worsens the trade balance.

Second, if farmers reduce fertilizer use and agricultural output falls, countries may export fewer crops. Lower export volumes reduce export revenue.

When both effects occur at the same time — higher import spending and lower export earnings — the current account position deteriorates.

Surplus vs Deficit

The impact depends on a country’s starting position.

Countries that normally run a current account surplus, often because of strong agricultural exports, may see their surplus shrink. For example, if Brazil exports fewer agricultural goods while spending more on fertilizer imports, its trade surplus could fall.

Countries that already run a current account deficit may experience a larger deficit. Rising import costs combined with falling export revenues worsen the gap between what a country buys from the rest of the world and what it sells.

In some cases, governments may need to borrow from abroad, use foreign exchange reserves, or allow their currency to depreciate in order to finance higher imports.

Why This Matters for IB Economics

This conflict demonstrates several important IB Economics concepts in action:

• Cost shocks affecting production

• The importance of key inputs in the supply chain

• The relationship between commodity prices and agricultural production

• How global events influence employment

• The link between trade flows and the current account

In short, a geopolitical conflict in one region of the world can have significant economic consequences elsewhere. Rising fertilizer prices caused by disruptions in the Gulf region could reduce agricultural production, increase rural unemployment, and worsen the current account balance in countries that rely heavily on the primary sector.

For IB students, this is a powerful reminder that economics is deeply connected to real-world events and global interdependence.