Oil Prices Drop as OPEC+ Boosts; Iran War Hits Fertilizer
Global oil prices are declining toward pre-war levels even as OPEC+ commits to increasing production, while the ongoing conflict with Iran continues to disrupt fertilizer supplies in a way that could push up food costs for American consumers. The two developments highlight the complex interplay between energy markets, geopolitics, and food prices in the aftermath of the US-Israel war with Iran.
OPEC+ Approves Further Output Increase
OPEC+ agreed during an online meeting on July 5 to increase output quotas by 188,000 barrels per day (bpd) from August, on top of similar increases for June and July, according to Reuters via NTD. The seven core members of the alliance — Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman — have now hiked quotas by almost 800,000 bpd since April.
Yet much of the increase has remained on paper because the war effectively closed the Strait of Hormuz to tanker traffic for key OPEC+ members. OPEC+ output fell to 33.13 million bpd in May from 42.77 million bpd in February, before beginning to recover in June.
“The group of seven kept unwinding their production cuts as widely expected,” said Giovanni Staunovo, an analyst at UBS. “The near-term focus will remain on how many tankers will manage to cross the Strait of Hormuz and how quickly demand and Chinese crude imports recover.”
Oil Prices Return to Pre-War Levels
Brent crude traded near $72 per barrel on July 3, down from peaks of more than $120 during the height of the Iran war and back to levels just before the US and Israel attacked Iran on February 28, as BBC News reported. Prices are being pressured by lower Chinese imports, higher exports from non-Middle East producers, and a record global strategic stock release coordinated by the International Energy Agency.
The price decline has raised expectations of relief at the pump. Simon Williams, head of policy at UK motoring group the RAC, said drivers should see petrol prices fall below 150p a litre in the coming weeks. In the US, President Donald Trump has ordered an investigation into major energy companies, accusing them of gouging drivers by not reducing fuel prices as oil costs fell.
However, risks remain. “Markets are still watching the region closely, and any renewed tensions could quickly send oil higher again,” warned Pratibha Thaker, regional director of Middle East and Africa at the Economist Intelligence Unit.
Fertilizer Disruption Threatens Food Prices
While oil markets show signs of recovery, the war’s impact on fertilizer supplies continues to reverberate. Before the conflict, approximately one-third of the world’s fertilizer transported by sea passed through the Strait of Hormuz, according to UN Trade and Development, as NPR reported.
The closure of the strait caused fertilizer shipments from the Persian Gulf to slump and prices to rise globally. The war also created a global shortage of natural gas, a key component in nitrogen fertilizer manufacturing.
About one-third of the fertilizer used by US farmers is imported, according to The Fertilizer Institute. “But we get impacted in a big way because the fertilizer market is global,” said Christopher Glen, the institute’s vice president of public affairs. “Even if those tons from the Mideast aren’t coming to the US, they are still tons that have been removed from the market and need to be made up elsewhere.”
An American Farm Bureau Federation survey released in April reported that 70% of respondents said they couldn’t afford all the fertilizer they needed this season. Some farmers are shifting from corn to soybeans, which require less nitrogen fertilizer. According to USDA data, farmers are expected to plant 95.3 million acres of corn this year, down from 98.8 million acres last year, while soybean acreage is predicted to rise to 85.4 million acres from 81.2 million acres.
Modest Impact on Grocery Prices Expected
Experts caution that the direct impact on US grocery prices may be modest. A TD Economics analysis estimated that a 2-5% production shortfall in North America could add 0.1-0.5 percentage points to food inflation in 2027.
“Consumers are going to see higher food prices come September to January, once harvests start coming in,” said Chris Barrett, a professor of agricultural economics at Cornell University. But he noted that “very little of that is going to be directly attributable to fertilizer.”
Barrett described the global food industry as facing a “really unpleasant layer cake” of pressures — from tariffs and extreme weather to higher costs for labor, fuel, and fertilizer. “No one of those by itself is especially painful,” he said. “But when you add them all up, they become quite painful together.”
Recovery Underway but Fragile
There are signs of recovery. The US and Iran signed a 14-point Memorandum of Understanding on June 17, establishing a 60-day negotiation period to end the war and reopen the Strait of Hormuz. Since then, 284 vessels have made the transit through the strait, though this remains below the pre-conflict average of approximately 138 crossings per day.
President Trump also temporarily suspended countervailing duties on certain phosphate imports on June 29 to help lower fertilizer costs for American farmers.
Still, the situation remains fragile. The 60-day negotiation period could break down, potentially re-closing the strait. And while some fertilizer prices have begun to fall, experts say it could take weeks or months for manufacturing plants to return to full production.
What to Watch
In the coming months, markets will be watching the progress of US-Iran negotiations, the pace of Hormuz shipping recovery, and whether OPEC+ can maintain cohesion after the UAE’s departure from the alliance. For American consumers, modest relief at the pump may be offset by creeping grocery prices, while farmers face difficult decisions about what to plant and how to manage rising input costs.