EAM: The New Geopolitical Nightmare
Energy, Agriculture and Materials (EAM) are now the frontlines of the Iran war
As US-Iran talks continue, two headlines today should give everybody pause. The first, from NBC, “Europe has maybe 6 weeks of jet fuel left.” The second, from The Times, “Britain preparing for food shortages.”
A quick Mr. Geopolitics unpacking…
Approximately 75% of Europe’s jet fuel supply comes from the Middle East, particularly Kuwait and Saudi Arabia, with around 40% flowing through the Strait of Hormuz itself. Without a steady supply of jet fuel, airlines would be grounded. However, European economic security is also on the line. To keep planes in the air, governments may need to divert oil from strategic reserves to create additional jet fuel, further exacerbating Europe’s energy crisis and leaving European states more vulnerable to future shocks. Adding to this, another hit to European balance sheets as jet fuel effectively doubles in cost to $1,838 per tonne, compared to less than $900 before the Iran war started in February. Part of the explosion in price is not only chaos in the Middle East but also the mechanics of American jet fuel deliveries to Europe, as US energy is significantly more expensive on global markets than Middle Eastern (or Russian) options (but is now the only option and the new benchmark).
Separately, the world is in the midst of a major period of food insecurity. This will affect the developed and developing world equally. At the core of this quiet emergency is that the fertilizer needed to grow food is paralyzed by the Iran war. Either the physical fertilizer itself cannot move (around 30% of global fertilizer passes through the Strait of Hormuz). Or, the “input” to create fertilizer, natural gas, has become so expensive (prices are up 70% in Europe), that crop production suffers as farmers drop yields or raise prices that are then passed onto consumers. This is occurring as farmers in the Northern Hemisphere enter their “primary season” (May-October). Except, there is a knock-on effect here. Because gas and fertilizer prices are rising, farmers are switching to planting soy over corn (as soy is far less expensive to grow). However, by doing this, the seeds are being laid (no pun intended) for more expensive meat, as corn is the primary livestock feed. There are two paths forward for global food markets: more expensive food or major shortages (what the UK is preparing for).
This is the new state of play because of the chaos in the Middle East. And, it creates serious hurdles for a range of sectors, like tourism.
In the backdrop of all this, materials like rubber and aluminium are having their own moment. In India and Vietnam, the prices of natural rubber are up 30%, while aluminum is up 25%, making a range of inputs, from tires to construction, substantially more expensive.
None of this will reverse even if the US and Iran find peace, which is becoming hard to define as US President Donald Trump warns that a proposed 20-year moratorium on Iranian nuclear weapons is not enough. There is a several-month catch-up window, meaning in the best of circumstances, even if the fighting stops tomorrow, and pre-war energy production resumes (not possible, just look at Qatari gas fields), it will take several months for global supply to catch up to demand.
Put simply, the current crises are the new status quo.
The battlefield is no longer just the Strait of Hormuz or Gulf states, but what I am referring to as “EAM” (Energy, Agriculture, and Materials).
Unless huge amounts of dormant supply suddenly appear, restabilizing prices, a new geopolitics is beginning between nations, and EAM markets. This is why Russia has proposed BRICS create food baskets (an idea I first wrote about in 2022), indirectly meaning that BRICS nations could look after themselves by pooling resources (i.e., Moscow supplying fertilizer) even as the rest of the globe wobbles. In this new setup, Europe, Asia, and Africa face the biggest headwinds.
And, all of this is assuming the Iran war does not get worse. Should ceasefire talks break down, Iran is likely to shudder the Al-Mandeb Strait, returning the Red Sea to a battlefield and paralyzing the movement of goods through the Strait of Hormuz. This would force shippers to use alternative routes, including around Africa, increasing costs (and time), further raising total prices. Equally important is a new potential shift in Russia’s favor, putting Europe in an awkward position. As the US ends waivers for Russian oil purchases, should the Red Sea and Hormuz Strait both fall back into war, some shippers may turn to the Northern Sea Route, circling northern Russia, to bring goods from Asia to Europe, injecting them into ports in northern Europe. This would give Moscow extraordinary control over the movements of goods throughout Eurasia, particularly into Europe.
Strangely, the Iran war is far from over. The shockwaves are only now starting to form. And, considering the geoeconomics, somehow, the actual fighting may be nothing compared to what is to come, underpinned by EAM.
-Abishur Prakash aka “Mr. Geopolitics”
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