War Against Iran Fuels Inflation

This week’s renewed military strikes between the United States and Iran further underscore concerns about what a prolonged war will do to agriculture and the overall global economy.

The International Monetary Fund lowered one forecast and raised another, providing two new indicators about increased concerns about the war harming economic stability. The IMF reduced its 2026 global growth forecast to 3% on Wednesday, while it increased its inflation projection to 4.7%.

The new numbers reflect a drop from the IMF’s growth rate by 0.1% from April and an inflation increase of 0.3% from April.

War with Iran raises energy prices

Energy continues to be a significant driver of inflationary pressure. The IMF pointed out that energy prices are about 25% higher than they were before the war began in February.

The war could continue upward financial pressure on production, input, and transportation costs.

War with Iran increased diesel prices

Diesel spiked 50% to more than $5.50 per gallon in April before backing down. But it remains 25-30% higher than it was before the war began. That increases costs of operating most tractors, combines, grain trucks, and irrigation pumps that rely on large amounts of diesel.

Higher fuel prices could also make planting, spraying, harvesting, and hauling crops more expensive.

Natural gas supply

The plentiful supply of natural gas in the United States meant that the war has not pushed up prices for this energy source compared to diesel. However, the increase in other countries following the outbreak of war has impacted natural gas prices.

Natural gas is a key ingredient in nitrogen fertilizer production. And fertilizer prices have remained elevated at between 25% and 40% in recent months.

Two commodities show how the increase can raise costs for producers. Nitrogen fertilizer cost hikes add $23-$27 per acre for corn production, according to research published in farmdoc daily.

Cost of soybean production

Fertilizer costs for soybean production have not gone up as much since that crop relies more on phosphorus and potash instead of nitrogen. Costs for bean growers is up an estimated $2 per acre, according to research published in farmdoc daily.  

Farmers will be watching costs for other items as the war continues. Higher energy costs could affect plastic used in bale wrap, irrigation pipe, and seed bags. Manufacturing and seed production and processing could also get more expensive.

And what happens during harvest? Agriculture depends on travel. Transportation costs could increase for getting grain to elevators, livestock to processors, feed to farmers, and fresh produce to grocery stores.

RELATED: This Midwest farmer hopes that renewable energy sources can help lower costs.  

FTC investigation of fertilizer prices

The Federal Trade Commission has launched an investigation into the rise of fertilizer prices.

FTC Chairman Andrew Ferguson spoke at an event hosted by Texas Corn Producers and other corn organizations. The Texas Farm Bureau reported that Ferguson said,  “I’m announcing that, on my order, the commission some time ago commenced a major industry-wide investigation into the precipitous rise of fertilizer prices in this country, which has affected so many of our nation’s farmers, including everyone in this room, including the issuance of compulsory process.”

RELATED: This story from American Farmland Owner looked at how the U.S. should better protect itself from higher fertilizer costs.