A recent research report highlights the "second-order effects" stemming from a potential blockade of the Strait of Hormuz. While the first-order impact involves a surge in energy prices affecting global asset values, the second-order consequences entail supply crises in energy-intensive industries such as aluminum, petrochemicals, and fertilizers. Among these, the fragility and potential shortage within the fertilizer supply chain are particularly pronounced, transmitting shocks across global trade channels. Emerging markets are expected to bear the brunt of the impact, though developed economies will not be immune.
The Middle East is not merely an oil reservoir; it is a core global supplier of oil and natural gas, and also a key production and export hub for aluminum, petrochemicals, and fertilizers. These industries are highly energy-intensive and deeply integrated into global supply chains, closely linked to oil and gas resources. Fertilizers and plastics are directly manufactured from hydrocarbons, aluminum production is one of the most energy-consuming industrial processes globally, and sulfur and sulfuric acid, essential raw materials for fertilizers and industrial chemicals, are also significant export commodities from the Middle East.
Disruptions in energy supply and logistics could directly cause shortages or delays in downstream raw materials. Moreover, the duration of these second-order effects may outlast the conflict itself, as post-conflict recovery efforts would likely prioritize restoring oil and LNG shipments, leaving industrial capacity repair as a secondary concern. Analysis based on trade database estimates indicates that the current disruption has already impacted several core upstream sectors, including aluminum, petrochemicals, and fertilizers, through global trade channels.
The global fertilizer sector faces a significant shortage. Leveraging abundant and low-cost natural gas resources, the Middle East has become a vital production region for nitrogen fertilizers like ammonia and urea, serving as a critical pillar of the global fertilizer supply chain. Any disruption to fertilizer supplies from this region would directly impact global agriculture and related industries, making it the most widely affected segment in this second-order effect scenario.
Trade volumes are notably at risk: Global imports of fertilizers from the Middle East exceed $12 billion, accounting for over 16% of total global fertilizer trade. For some nitrogen-based products, the dependency on Middle Eastern imports exceeds 25%, highlighting the extreme reliance of global agricultural economies on fertilizers from this region.
Risks of upstream raw material shortages are intensified: The Middle East is a core supplier of sulfur and sulfuric acid. Approximately $5 billion worth of trade in these materials is at risk of disruption. As these are key basic inputs for fertilizer production, their shortage would further constrain fertilizer manufacturing capacity from the raw material end, creating a vicious cycle within the supply chain.
The supply gap is inflexible: Fertilizer is a core input for agricultural production, with demand tightly linked to farming seasons. A sudden interruption of supply from the Middle East leaves import-dependent economies with limited options for rapid substitution, creating an immediate and rigid shortfall in fertilizer availability.
While fertilizer shortage represents the core concern of these second-order effects, simultaneous disruptions in aluminum and petrochemical trade are applying dual pressures on global industrial supply chains. Shortfalls in both product categories underscore the Middle East's pivotal supply role, as they are essential upstream raw materials for downstream manufacturing sectors.
Regarding aluminum trade: Over $15 billion in global aluminum trade, primarily unwrought aluminum constituting 8% of global trade volume, faces disruption risk. This product is a crucial upstream input for components and finished goods industries. Major Gulf suppliers like the UAE, Bahrain, Qatar, and Oman, whose products are mainly destined for parts of Asia and Europe, would see exports of primary aluminum and semi-finished products constrained directly by disruptions to energy production and logistics in the Strait of Hormuz, leading to a global shortage of upstream aluminum raw materials.
Concerning petrochemicals: Approximately $26 billion in global plastic trade, representing 9% of the total, is exposed to disruption, with the Middle East being a major exporter. Economies like China, India, Turkey, and Egypt are among the most significantly affected. As a fundamental raw material for packaging, industrial manufacturing, and consumer goods, a plastic supply shortage would directly create input gaps for downstream industries, compounding the effects of fertilizer and aluminum shortages and amplifying the overall shock to industrial supply chains.
The exposure to these second-order oil price effects varies significantly across global economies. Emerging markets are the primary bearers of risk concerning shortages in fertilizers, aluminum, and petrochemicals. Although developed economies possess more diversified industrial structures, they still maintain significant raw material import exposures, leaving them vulnerable to permeating risks.
Emerging markets face concentrated impact: India, Brazil, Turkey, and South Africa are the largest importers of Middle Eastern aluminum, petrochemicals/plastics, and fertilizers. The simultaneous shortage of these three core upstream inputs directly impacts their key sectors like agriculture and manufacturing, creating substantial supply chain pressures.
Developed economies maintain raw material exposure: Even resource-rich nations like Australia import significant amounts of fertilizer from the Middle East, facing direct impact from potential shortages. Countries including Japan, South Korea, Italy, and the United States source no less than 10% of their aluminum imports from the Middle East, meaning an aluminum raw material gap would transmit downstream to their manufacturing sectors.
In conclusion, the oil price shock triggered by a Strait of Hormuz disruption has extended beyond the energy sector, evolving into a supply crisis for key global industrial raw materials like aluminum, petrochemicals, and fertilizers. Among these, the fertilizer shortage, due to its direct link to global agricultural production and food security, stands out as the central risk point in this second-order effect scenario.
The nature of this shock is characterized by two key features: persistence, as industrial capacity recovery will lag behind prioritized oil and gas transport restoration, prolonging the impact of raw material shortages beyond the conflict duration; and transmissibility, spreading from upstream raw materials to mid- and downstream industries via global trade networks, and permeating from emerging markets into developed economies.
Globally, supply chains require rapid adjustment to cope with raw material scarcities. However, the impact of this disruption is already significant. Against the backdrop of a global manufacturing recovery, economies face multiple adjustment pressures related to input substitution, inventory management, and capacity realignment. This pressure is poised to become a significant variable influencing the pace of global economic recovery.