Strait of Hormuz, breaking news! Russia: Bans gasoline exports!

The spillover risk from the conflict in the Middle East is increasing.

According to the latest reports, the Russian government has announced that, effective April 1, it will ban gasoline exports. The purpose is to stabilize prices amid energy market turmoil triggered by the Middle East conflict and to prioritize supply for Russia’s domestic market.

According to the latest report by Xinhua News Agency, Malaysian Foreign Minister Mohammed said on March 28 that the Iranian government has allowed several Malaysian oil tankers stranded in the Strait of Hormuz to transit. Mohammed told the media on the same day that, given the current tense situation in the Middle East, although the tankers have been approved to pass through the Strait of Hormuz, they still need to wait for an appropriate “transit window.”

Meanwhile, local time on March 28, Thai Prime Minister Anutin said that Thailand reached an agreement with Iran regarding the transit of the country’s oil tankers through the Strait of Hormuz.

Russia: Ban on gasoline exports

On March 28, according to Xinhua News Agency, the Russian government said that on March 27, Russian Deputy Prime Minister Alexander Novak instructed the Ministry of Energy to draft an administrative order to ban gasoline exports effective April 1. The purpose is to stabilize prices amid energy market turmoil triggered by the Middle East conflict and to prioritize supply for Russia’s domestic market.

According to TASS, the above instruction was announced after the Russian cabinet held a meeting on March 27 to discuss the situation in the domestic oil products market. The ban will remain in effect until July 31.

Novak said that the Middle East crisis has caused turmoil in global oil and oil products markets, leading to sharp price fluctuations. However, he said, high foreign demand for Russia’s energy resources remains a positive factor. The Russian government said in a statement that, for the time being, the country’s crude oil refining volume is on par with last year, ensuring stable supply of oil products.

As Reuters puts it, to stabilize the domestic market, Russia has previously imposed temporary restrictions on gasoline and diesel exports on multiple occasions.

Since Iran launched a large-scale military operation on February 28 by the United States and Israel, shipping through the Strait of Hormuz—one of the world’s key energy transport routes—has been severely disrupted, with international oil prices swinging sharply.

According to a report from TASS on March 26, Alexander Shokhin, chairman of the Russian Union of Industrialists and Entrepreneurs, said that on that day, when President Vladimir Putin met with business leaders, he expressed hope that the Middle East conflict will end within the coming few weeks. Putin said clearly that the Middle East conflict has brought Russia—an energy-exporting power—extra profits, but that this situation will not last much longer. Russia’s Ministry of Finance and relevant companies should not expect long-term “unexpected windfalls.”

In addition, Greg Ip, chief economic commentator for The Wall Street Journal, said that the market may be underestimating the impact of Ukraine’s ongoing attacks on Russia’s ability to export oil and diesel. A report by The Kyiv Independent that Greg Ip reposted said that Ukraine is stepping up attacks on Russia’s oil industry, including striking energy facilities, sabotaging pipelines, and seizing oil tankers. These actions have affected about 40% of Russia’s oil supply. While disruptions in global supply driven by the situation in Iran temporarily boosted Russia’s energy revenues, the continued escalation of attacks could cause deeper and more far-reaching damage to its export capacity.

Global food prices face an upside risk

Recent warnings from economists say that the latest wave of the U.S.-Israel-Iran conflict has, within a short period of time, triggered one of the fastest and most severe shocks to global flows of major commodities in recent years. It has led to a surge in natural gas prices, tighter supplies of fertilizers, and farmers worldwide facing growing pressure, with global food prices now facing an upward risk.

Karl Skau, deputy executive director of the United Nations World Food Programme, said that the poorest farmers in the Northern Hemisphere rely heavily on imported fertilizer from the Gulf region, and the current shortage coincides with the start of the planting season.

He noted: “In the worst case, this means a drop in output next season and even crop failure; in the best case, the higher input costs will be reflected in next year’s food prices.”

Maximo Torero, chief economist of the United Nations Food and Agriculture Organization, said that the Strait of Hormuz is a key global corridor for transporting energy and fertilizers, carrying about 20 million barrels of oil per day on average, accounting for about 35% of global crude oil transport. At the same time, it also handles large volumes of liquefied natural gas and fertilizer trade transport, and sulfur from the Gulf region is an important raw material for phosphate fertilizer production. The disruption of the shipping lane has already quickly spread to the global food and agricultural system.

At present, supplies of two major fertilizers—nitrogen fertilizer and phosphate fertilizer—are facing direct threats. Among them, nitrogen fertilizer supply (including urea) is hit the hardest. Urea is the fertilizer product with the highest volume of global trading and can promote crop growth and increase yields.

Chris Lawson, an analyst at London-based commodities consulting firm CRU Group, said that this conflict has affected about 30% of the world’s urea trade.

Some countries have already seen severe shortages. Raj Patel, a food systems economist at the University of Texas, pointed out that, for example, Ethiopia relies on nitrogen fertilizer imported from the Gulf region via Djibouti for more than 90% of its needs, and this supply chain was already tight before the war broke out.

At the same time, supplies of phosphate fertilizer—which supports the development of crop root systems—are also under pressure. Saudi Arabia produces about one-fifth of the world’s phosphate fertilizer; the region also exports more than 40% of global sulfur, which is a key raw material and byproduct in the oil and natural gas refining process.

An analyst at Argus, Owen Gooch, said that even if the war ends, Gulf-region producers will still need clear security guarantees before resuming transport through the strait, and transportation insurance costs will almost certainly rise.

Proofread by: Wang Wei