For the first time since Russia’s invasion of Ukraine in 2022, oil prices have surged past $100 per barrel. The catalyst this time is the conflict in Iran and the effective closure of the Strait of Hormuz, a narrow waterway through which roughly one-fifth of the world’s petroleum and a significant share of its fertiliser trade flows. The immediate consequences for global food and agribusiness are already visible: fertiliser prices have climbed sharply, input costs for the upcoming planting season are rising, and the financial markets that underpin agribusiness investment are showing signs of stress.
At the same time, a broader credit cycle appears to be emerging in Western financial markets. Private credit, the fastest-growing segment of the lending landscape over the past decade, is experiencing significant drawdowns, concentration risks, and mounting questions about asset quality. For agribusiness owners, investors, and policymakers, these two forces – energy-driven cost inflation and tightening credit conditions – are converging at a particularly challenging moment. This article examines how these dynamics interact, what they mean for food producers, and why the agribusiness finance environment merits close attention.
How oil prices transmit directly to food production costs
The relationship between oil prices and food prices is well established. Energy costs affect every stage of the food supply chain, from the manufacture of fertilisers and the operation of farm machinery to the refrigerated transport of perishable goods and the processing and packaging of finished products. When oil prices rise, the effects cascade through these stages.
The current shock is particularly acute because of its impact on fertiliser supply chains. The Gulf region accounts for nearly 49% of global urea exports and approximately 30% of global ammonia exports, according to the American Farm Bureau Federation. More than one-third of all seaborne fertiliser passes through the Strait of Hormuz. With that waterway effectively closed, spot prices for urea, the most widely used solid nitrogen fertiliser, have risen by more than 30% since late February 2026.
The impact is significant. Nitrogen-based fertilisers are one of the most common methods of increasing yields. It is particularly critical for maize, which accounts for 95% of total feed grain and feed production in the United States. When fertiliser costs rise, farmers face an immediate and difficult decision: absorb the higher costs on already thin margins, reduce application rates and accept lower yields, or shift acreage toward less nitrogen-intensive crops. Each of these responses carries downstream consequences.
Why fertiliser markets amplify energy shocks into food inflation
Unlike oil and gas, there is no strategic reserve for nitrogen fertiliser. This structural vulnerability means that even relatively short disruptions to fertiliser trade routes can have an outsized impact on agri input costs, particularly when they coincide with peak demand periods such as planting seasons. For this reason the timing of the current disruption is significant. Farmers across the Northern Hemisphere are entering their most input-intensive period. Reports from the United States indicate that wholesale urea prices at some ports rose by more than $150 per ton in the two weeks following the outbreak of the conflict, adding tens of thousands of dollars to individual farm operating budgets.
Higher input costs at the farm level are either absorbed through lower margins, which is unsustainable beyond one or two seasons, or passed through to processors, retailers, and ultimately consumers.
In lower-income countries, where populations spend a far greater share of their income on food and where governments often subsidise both energy and fertiliser, the fiscal and social pressures can be severe. Food price inflation also carries a disproportionate weight in consumer price indices across emerging economies, limiting monetary policy flexibility and raising political risk.
The duration of the conflict will ultimately determine the severity of the impact. If hostilities conclude within weeks, the long-term effect on food prices is likely to be modest. However, if the disruption extends for months, the compound effect of higher energy costs, constrained fertiliser supply, and lower crop yields will build steadily. Agricultural economists have noted that this sequence – energy shock, input cost surge, yield reduction, food price inflation – has followed every significant oil price spike in recent decades, from the crises of the 1970s through to the commodity surge of 2008 and the post-Ukraine invasion period of 2022.
The emerging credit cycle’s relevance to agribusiness finance
Beyond the immediate input cost pressures, the broader financial environment is also shifting in ways that have significant implications for agribusiness finance and operations. The private credit market, which has grown from approximately $300bn a decade ago to $1.8tn today and has leant heavily to the private equity sector, is now showing early signs of stress.
Several indicators suggest that a new credit cycle – a period in which loan losses begin to rise – is now emerging. The opacity of private credit markets makes it difficult to assess the true quality of loan portfolios. However, multiple large private credit funds have recently faced redemption requests that significantly exceed their quarterly limits, which is certainly a worrying sign.
While much of the current attention has focused on private credit’s overexposure to the software sector, the broader pattern is relevant to agribusiness. For private equity-backed food and agriculture businesses, the refinancing environment is likely to become more challenging. Any leveraged loans that need to be refinanced in the coming years will ultimately be repriced at materially higher rates. This will obviously place additional pressure on the cash flows of the underlying businesses, and in agribusiness, where margins are structurally thin and revenue is often seasonal and variable, even modest increases in debt service costs can have a pronounced impact on financial viability.
This convergence of rising input costs and a potentially tightening credit environment creates challenges for agribusiness finance and operations. On the operational side, higher energy and fertiliser costs compress farm-level margins at a time when many agricultural operations are already under pressure. On the financing side, higher interest rates and growing caution among lenders are making capital more expensive and harder to access, particularly for leveraged businesses.
For investors considering new allocations to food and agriculture, the current environment requires a more granular assessment of risk.
Implications for food-importing nations and development finance
The interplay between energy costs, fertiliser availability, and credit conditions is particularly consequential for food-importing nations in the Middle East, Africa, and South Asia. A sustained period of high oil and fertiliser prices may force potentially difficult trade-offs between food security spending and other development priorities.
For development finance institutions and sovereign wealth funds with exposure to agribusiness, the current environment highlights the importance of supply chain resilience and input diversification. Countries that have invested in domestic fertiliser production capacity or regenerative agriculture are better positioned to absorb external shocks.
The credit cycle dimension adds a further layer of complexity. If private credit markets experience a sustained period of stress, the availability of development-orientated lending and co-investment capital could be affected, particularly for mid-market agribusiness transactions in emerging economies where risk appetite is already constrained.
Stress-testing assumptions in a higher-risk environment
The current convergence of energy-driven cost inflation and emerging credit market stress presents a challenging backdrop for many food and agribusinesses. Ultimately, the severity of the eventual impact will depend heavily on the duration of the disruption, the organisation’s exposure to leveraged agribusiness assets and their operational flexibility. For investors and financiers, the priority is to stress-test their cost structures, closely scrutinise their loan and business portfolios, and diversify their sources of finance.
At Farrelly Mitchell, our agribusiness consultants and investment advisory specialists understand agribusiness finance. We provide strategic, technical, and commercial expertise to help agribusiness owners, investors, and policymakers make informed decisions and achieve sustainable growth. From input cost analysis and supply chain risk assessment to investment due diligence and financial structuring, we help clients navigate complex market conditions with clarity and confidence.
With a proven track record across the global food and agriculture value chain, we combine local market insights with global best practices to enable organisations to optimise operations, address complex challenges, and capitalise on emerging opportunities. Contact our experts today to discuss how we can support your business’ continued growth and profitability.
