While most of the focus has been on oil, the Strait of Hormuz is also the world's main highway for fertiliser, petrochemicals, and specialty gases and we are already seeing price pressure build there as well. With restrictions on traffic dragging on, its important for business owners to be aware of other impacts beyond oil. A lot of these price increases as already locked in, even if the strait opens tomorrow, so it pays to be prepared.
Urea
- Prices are up from A$675/t in February to over A$1,350/t (+100%).
- Urea can be 30 to 40% of a grain farmers' input costs. Costs locked in at sowing can't be unwound through the growing process.
- Urea also feeds AdBlue, required for all modern farm equipment and heavy transport which is an input shock on top of fuel.
- Cost increases will flow directly through to elevated food prices over the next three to six months. A serious problem when food price inflation was already hot at 3.1%.
Semiconductors
- Helium input costs are up almost 100% since Iranian strikes took Qatar's Ras Laffan offline. Major manufacturers have secured supply through at least June, but there are going to be cost implications.
- Sulphuric acid is also a direct semiconductor input. The Middle East accounts for ~50% of global seaborne sulphur trade and sulphur prices are up 70% since the conflict began. China has also banned sulphuric acid exports from May.
- Both price shocks land on top of already elevated prices due to AI hyperscaler demand.
- This is going to push up the cost of semiconductors, which are in almost everything now. This is not just a "laptops and smartphones get more expensive" story. It will have much broader impact.
Plastics
- Polyethylene resin prices are up about 50% since the conflict began with further potential increases flagged for May if the conflict continues.
- Naphtha the key feedstock for plastics production is up ~74% since late February.
- Polyethylene is the base layer of packaging across the entire grocery supply chain (food and drink packaging, personal care, household products, fresh produce). While packaging only makes up between 10% and 25% of total cost, that fact its spread across a very wide range of products means it still has a significant impact. Again, prices operate on a two-to-three-month lag meaning a broad-based packaging cost shock hits Australian supermarket shelves in Q3.
Freight
- Spot container rates are up about 22% since February due to higher fuel costs and war risk surcharges.
- Freight costs pass straight through to retail prices with a two-to-three-month lag. Low tradeable inflation offsetting some of rampant services inflation was the key thing keeping headline numbers vaguely reasonable and allowing the RBA some breathing room. If freight costs remain elevated, that tradeable number moves up and headline inflation moves with it.
The OECD has revised Australia's 2026 headline inflation forecast up 1.4 point to 4.1%, with Treasurer Chalmers flagging a potential peak of 5%. The fuel shock is temporary and visible (hopefully). The follow-on shocks are delayed, diffuse, and compound. the longer the crisis drags on the worse the impacts get and the bigger risk that new price level gets locked in.
For the RBA this is a real challenge, the impact of a supply side price shock is to both increase inflation and depress growth, which have opposite policy responses. Unfortunately, that leaves them with no good answer and fighting the greater evil of unanchored inflation expectations means rates have to go up.
For business owners, these are more moving parts that need to be worked into forecasts and crisis response plans.