Agriculture in the crossfire: war between Israel and Iran affects Brazilian production

In addition to the geopolitical consequences, the war between Israel and Iran, which entered its fifth day this Tuesday (17), has generated strong repercussions in international markets, raising an alert for Brazilian agribusiness. The long-term continuation or a possible escalation of the attacks should have as a direct consequence the increase in production costs of national agriculture.

One of the biggest concerns is the market for urea, the main nitrogen-based fertilizer used in agriculture and of which Iran is one of the most important global suppliers.

Last year, 19% of all the compound imported by Brazil came from Iran, equivalent to 1.6 million tons of the 8.3 million tons purchased by Brazil abroad, according to the consulting firm Argus.

“This aspect is particularly sensitive because we are in a period in which not all inputs for the 2025/26 harvest have been purchased,” says economist Felippe Serigati, coordinator of the Professional Master’s in Agribusiness at FGVAgro. “Depending on the situation, it is quite reasonable for people to anticipate purchases of fertilizers that will be used in the 2026 second harvest.”

In addition to being more expensive, says the economist, there may be difficulties in providing a full supply of urea for the entire country.

Renata Cardarelli, agriculture and fertilizer specialist at Argus, explains that uncertainties regarding the global availability of nitrogen and potential supply restrictions have already caused many participants to withdraw from the physical market.

Last Thursday (12), the average price of granulated urea imported by Brazil was US$ 398 per ton (including freight). The market had low liquidity because it was awaiting developments in an auction in India to purchase the product.

On Friday (13), with tensions between Israel and Iran, the auction ended up on the back burner, and the average price rose to US$ 430 per ton. On Monday (16), the midpoint of Argus' daily range was US$ 435, following the rise recorded in the paper market and with participants absent from the physical market.

The accumulated increase since the beginning of the conflict is 9.3%.

The Middle East is the world's leading exporter of urea, shipping about 20 million tons per year, with Iran accounting for 25% of this total. Total urea production in Iran is estimated at about 9 million tons per year.

Brazil imports potassium chloride from Israel

Brazil also imports fertilizers from Israel, mainly potassium chloride, although in this case the impact is not expected to be as significant. In 2024, Israel was the fourth largest supplier of potassium fertilizers to Brazil, with around 1 million tons shipped.

Russia led exports of potassium to Brazilian agriculture, with 5.4 million tons, followed by Canada (4.9 million tons) and Uzbekistan (1.4 million tons).

“Even when the Israeli conflict with Hamas began in October 2023, which could cause some problems in accessing the country's ports via the Mediterranean, we did not have any major problems,” explains Serigati.

Iran is an important destination for Brazilian corn

On the other hand, Iran is still an important buyer of Brazilian corn. The continuation or escalation of the war in the region also tends to harm this trade.

In 2024, Brazil sold 4.3 million tons of grain to the Iranian market, around 10% of all corn exported. Sales to Iran, the third largest buyer of Brazilian corn, behind Egypt and Vietnam, totaled US$ 918.4 million.

“I don’t think it will change the price, because we don’t have much leeway in this market due to the domestic demand for corn for feed and ethanol production,” says the FGV professor. “But a trader who has a contract with Iran as a destination could have a headache.”

Rising oil prices make freight and agricultural machinery more expensive

One of the main consequences of a prolonged conflict, however, is likely to be the price of oil, which affects all crops, some more or less directly. The Middle East region is one of the main producers of fossil fuels, and any tension influences prices due to the risks associated with the supply of the product.

The start of the war between Israel and Iran caused the price of a barrel of Brent crude to jump from US$69.36 on Thursday to US$74.75 (+7.77%) the following day. On Monday (16), prices fell after news that Iran was seeking negotiations with the United States so that the country could pressure Israel into a ceasefire.

The increase in the price of diesel fuel directly influences the cost of agricultural machinery. And products that compete directly with petroleum derivatives tend to become more expensive. “If synthetic fiber becomes less competitive, for example, this tends to push the price of cotton up,” explains Serigati.

Furthermore, a surge in oil prices would make freight more expensive for both road and sea transport, directly affecting import, export, production and distribution costs.

Risk of needing to divert route would make sea freight even more expensive

One of the major concerns in the global market is the possible need to divert routes, especially if Iran decides to block the Strait of Hormuz, a small strip of water that connects the Persian Gulf to the open sea.

The canal is vital for exports of oil and natural gas from the Middle East to the rest of the world. According to the U.S. Energy and Information Administration, about 20 million barrels of oil pass through the strait every day.

For Brazilian foreign trade, animal proteins that are sold to the Middle East could have some difficulty in supplying the region's market, although neither the Strait of Hormuz nor the Suez Canal, in the Red Sea, are the main routes.

The problem is that the need to divert routes in the global trade flow increases freight and maritime insurance prices in general. “It’s not even a question of fuel, but the freight market having to reorganize itself has effects on everyone,” says Serigati.

Effects of Israel-Iran conflict on food inflation uncertain

It is still too early to assess how the increase in production costs will reach the food plate. Serigati explains that the transmission of costs from the field to the price will depend largely on productivity.

“We went through a war in Ukraine that drove up the price of fertilizers, and there was a monumental effort to bring in potassium chloride and nitrogen from wherever possible, including Iran. And we had a bumper harvest in 2023,” he recalls.

Exchange rate is not the biggest concern

Regarding the exchange rate, projections are still uncertain. Although wars generally lead investors to seek positions in US dollars, in recent years the security associated with US bonds has been reduced.

“If people realize that, despite the risk, things won’t escalate in the next six months, they will look first at our real interest rates, which are running at around 9%,” says the economist.

On Monday (16), the American currency closed trading at R$5.487, renewing the lowest closing level since October 7th of last year.