War and urea fertilizer, what is the real risk?Urea FuturesZCE_DLY:UR1!SwissquoteThree strategic commodities are impacted by the closure of the Strait of Hormuz: oil, gas and urea fertilizer. Even after the reopening of the Strait of Hormuz, it will take several weeks to return to export flows seen before the start of military operations on Saturday, February 28. Oil prices are on technical red alert, but is this really also the case for urea prices in financial markets? The answer is no. Certainly, the fundamental risk is huge as 35% of global urea exports pass through the Strait of Hormuz, but in terms of price action on commodity markets, urea prices have not yet given a major bullish technical signal and are still down more than 50% from the levels reached just after the start of the war in Ukraine. It is imperative that the technical resistance at 1950 is not broken; otherwise, urea prices would enter a risky technical zone from an inflationary standpoint, with negative consequences for global food inflation. The chart below shows the daily Japanese candlesticks of urea fertilizer on the commodity futures market. The fundamental risk is nevertheless real because 35% of urea exports pass through Hormuz, and it is estimated that it will take at least one month after the reopening of the strait to return to pre-crisis flows. Urea, the main nitrogen fertilizer used worldwide, plays a central role in modern agricultural production. Its role is decisive: it significantly increases crop yields, particularly for cereals such as wheat, corn and rice. If the current conflict were to persist over time, global supply could quickly contract, which is currently the case with military operations by the United States and Israel against Iran. The table below outlines the risks for oil, gas and urea linked to the current conflict in the Middle East. This contraction mechanically leads to a rise in prices. Fertilizers represent a major cost for farmers, on average 20% of variable costs depending on the crop. When urea prices increase, producers face a dilemma: absorb the increase, reduce inputs (at the risk of lowering yields), or pass the costs on to selling prices. In most cases, part of this increase is transmitted throughout the entire food chain. However, the inflationary impact varies by region. Europe, for example, is relatively less dependent on direct imports from the Gulf, but it remains exposed to global prices and to the cost of natural gas, which is essential for fertilizer production. Conversely, some emerging countries, more dependent on imports, are much more vulnerable. Ultimately, the inflationary risk linked to urea is very real, and technical signals from urea prices in financial markets must be monitored very closely in the coming weeks. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions. This content is not intended to manipulate the market or encourage any specific financial behavior. Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results. Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content. The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services. Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA. Products and services of Swissquote are only intended for those permitted to receive them under local law. All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade. Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties. The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.