Market Morsel: Israel-Palestine Conflict. Impact on grains?

Grain | 9th October 2023 | By Andrew Whitelaw

Market Morsel

The world seems to be going a little bit mad at the moment.

It was horrific to see the footage coming out of Israel over the weekend and to see the continuing increase in the death toll. Whilst Hamas struck the first blow, it seems likely that the Palestinian people will be the ones to bear the brunt of retaliation.

Discussing the impact of these abominable matters on markets can be a bit morbid. The reality is that events with terrible human consequences do shape markets every day, from floods in India, and drought in Africa to the war in Ukraine.

So, what impact does the conflict in Israel have on grain markets? Very little, at present. The current conflict with the present participants (Hamas/Israel) will likely have little impact on the market.

The impact will be if there is contagion to the wider region. There are allegations that Iran has been responsible for assisting in the planning and funding of this weekend’s attack.

If the conflict grew to include neighbours such Lebanon and Iran, then we could see the flow of crude oil being stymied.

Iran is a member of OPEC and produces approximately 3.5 to 4m barrels of crude oil daily out of approximately 90m barrels globally. This equests to just under 5% of global crude oil production. This doesn’t take into account the  Persian Gulf as a crucial chokepoint for other nations’ oil exports – accounting for 20% of global crude oil and one-third of its LNG.

So if, and that is a big if, the conflict enlarges, then we could see an impact on energy markets. We have discussed in great length the impact of energy markets on agricultural commodities, but here is a summary:

  • Wheat, corn and oilseeds have a strong relationship with crude oil. This is due to the interchangeability to produce biofuels.
  • The main ingredient for nitrogen-based fertilizer (Urea) is natural gas. When the gas price rises, so does the urea price.