A conflict with Iran was always going to mean a spike in oil and gas prices. That is indeed happening, although the impact will be far harder in Europe and Asia than in the U.S.
Fertilizer prices are being squeezed, too. Natural gas, the primary feedstock for ammonia, is a critical element in the production of nitrogen-based fertilizers (roughly 60 percent of global fertilizer production) and can account for some 70–90 percent of their cost.
The Gulf region is home to some of the world’s largest fertilizer plants, and the Strait of Hormuz handles about one-third of the global trade for the nutrients. Prices were already high before the latest conflict in the Middle East erupted, and the fresh tensions come as Northern Hemisphere farmers are set to start applying the products to their fields.
And then there’s the small matter of water.
As Javier Blas points out in a different Bloomberg piece, the arid countries of the Gulf region have long relied on large supplies of desalinated water:
Kuwait, Qatar and the UAE are, for all practical purposes, completely dependent on the desalination plants, particularly for metropolises such as Dubai. Saudi Arabia, and especially its capital, Riyadh, also relies heavily on them.
The problem is the vulnerability to attack of the plants that produce it, as well as that of the oil and gas supply chain that fuels them.
Blas:
Under international law, the desalination plants are protected. But I have seen enough Middle Eastern wars to know the weight of the Geneva Conventions when missiles and bombs start flying. And they are: Iran has attacked a power station in Fujairah, UAE that keeps one of the world’s largest desalination plants running. In Kuwait, debris from a drone interception caused a fire in one of the country’s plants.
The CIA has been warning about this since (at least) the 1980s. There was also analysis by the U.S. embassy in Saudi Arabia (released by Wikileaks in 2008) that contained a warning about the danger that came with Riyadh’s reliance on a roughly 300-mile water pipeline system originating at the Jubail desalination plant.
Blas quotes from the leaked analysis:
“Riyadh would have to evacuate within a week if the plant, its pipelines, or associated power infrastructure were seriously damaged or destroyed. . . . The current structure of the Saudi government could not exist without the Jubail desalinization plant.”
In Blas’s view, “water is so strategic — and so human — that any Iranian direct attack on [such facilities] would be considered a massive escalation, so perhaps is a step too far for Tehran.”
But he also points out that:
Back in 1991, the Iraqi troops under Saddam Hussein deliberately opened the taps of a key Kuwaiti oil pipeline, spilling the crude into the Persian Gulf. The aim was twofold: hamper an amphibious landing by the US and its allies to liberate the country, and pollute the sea in the hope of damaging the nearby Saudi desalination plants.