Insight Focus
Middle East tensions are still volatile despite a ceasefire. The conflict has disrupted oil, fertilizer prices, and shipping rates near the Strait of Hormuz. Meanwhile, global trade faces pressure as US-China imports fall and China expands ties with Africa amid US agricultural labour shortages.
Middle East Tensions Disrupt Global Trade
Tensions in the Middle East remain dangerously high despite a fragile ceasefire between Iran and Israel brokered with US involvement. Earlier this month, coordinated US-Israeli strikes on Iranian nuclear facilities prompted missile retaliation from Iran, including an attack on a US base in Qatar and strikes near Israeli airspace. A ceasefire was soon declared, with President Trump affirming that “all Israeli planes heading to Iran will turn around and head home.”
However, the truce remains tenuous. Trump has expressed being ‘very unhappy’ with both sides amid reported violations and held direct talks with Israeli Prime Minister Benjamin Netanyahu. While large-scale hostilities have paused, Iran’s missile and drone capabilities remain intact, and proxy groups like Kata’ib Hezbollah and the Houthis continue to pose threats to US and regional interests.
Hardline Iranian politicians have revived calls to close the Strait of Hormuz—a critical chokepoint for over 20% of the world’s oil supply—sending ripples through global energy and shipping markets. With tensions simmering and military forces still deployed, the risk of renewed conflict remains high.
Oil Markets React to Ceasefire
Oil prices dropped nearly 5% after Israel and Iran agreed to a fragile ceasefire, easing fears of further supply disruptions. Brent crude fell to around USD 68/barrel before recovering slightly amid fresh ceasefire violation claims. Prices had surged to USD 81/barrel amid concerns Iran might block the Strait of Hormuz, a vital route for over 20% of the world’s oil.
Source: Investing.com
President Trump’s confirmation of the ceasefire helped calm markets and ease wholesale gas prices, especially in the UK. Should the ceasefire hold, investors may expect a return to more normal price levels.
However, any renewed escalation or disruption to the Strait of Hormuz would likely send prices soaring again, with broad consequences for energy costs and the global economy—reminiscent of the impact seen after the 2022 Russian invasion of Ukraine.
Fertilizer Supplies Under Pressure
Middle East tensions have also severely disrupted fertilizer supplies, pushing urea prices higher. In Iran, all major urea plants remain shut after strikes targeted key natural gas facilities, cutting essential feedstock for production. Similarly, Egypt halted nitrogen fertilizer output after Israel stopped natural gas exports via pipeline.
The threat of Iran closing the Strait of Hormuz—through which over 40% of global offshore urea trade passes—has added further pressure on shipping and supply chains. This has driven sharp price rises: Algeria’s urea prices hit USD 520/tonne FOB, Brazil’s contracts climbed to USD 480/tonne CFR, and US prices briefly spiked above USD 400/short ton (USD 441/tonne).
If tensions persist or the Strait of Hormuz closes, fertilizer costs could soar to historic highs, exacerbating global supply challenges and increasing costs for farmers worldwide.
Freight Rates Surge Near Conflict Zone
The Middle East conflict has driven a sharp rise in container shipping rates on specific trade routes exposed to regional risk.
Rates from Shanghai to the Port of Khor Fakkan in the UAE—located just outside the Strait of Hormuz—have surged 76% since mid-May, reaching USD 3,341/forty-foot equivalent unit (FEU), according to Xeneta.
Source: Xeneta
This spike reflects elevated security risks, increased fuel usage from faster sailing speeds, and war risk premiums. The spread between rates paid by smaller versus larger shippers has also widened significantly, with those lacking negotiating power facing steeper surcharges.
While global ocean freight rates remain largely stable, lanes near the conflict zone are experiencing concentrated pressure.
Global Trade War Regains Momentum
Global supply chains are feeling the strain as trade tensions intensify ahead of a July 9 deadline for US tariff decisions . For the first time in over a month, Drewry’s World Container Index (WCI) fell 7% this week, breaking a six-week streak of gains. The drop was driven by weaker demand for US-bound cargo—suggesting that the recent import surge, prompted by a temporary easing of tariffs, may be losing momentum.
Freight rates from Shanghai to New York fell 10% to USD 6,584/40-foot container, while rates to Los Angeles plunged 20% in just a week. Despite the decline, spot rates remain significantly elevated—up 81% and 73%, respectively, compared to early May. Meanwhile, freight from Shanghai to Rotterdam rose 12%, signalling a possible shift in trade flow priorities as uncertainty around US policy persists.
Source: Drewry
This volatility reflects broader instability in global trade. The US has yet to resolve major tariff disputes with key partners. Canada recently announced new steel import restrictions and hinted at higher duties on US metals. Japan has made little progress in securing tariff relief, and President Trump has publicly criticised the EU for failing to offer what he deems a “fair deal.”
The chair of Trump’s Council of Economic Advisers admitted that trade policy is “still not settled,” underscoring the growing uncertainty as the tariff deadline nears.
US Imports from China Drop
Amid ongoing disputes, the US and China struck a narrow deal on June 11 the US and China struck a narrow deal on June 11 after two days of talks in London. US tariffs on Chinese goods will rise to 55%—up from 30%—through a mix of new and reinstated levies. China will hold its tariffs at 10% and pledged upfront shipments of critical rare earths and magnets.
Still, the impact of sustained tariff pressure is clear: US seaborne imports from China fell 28.5% year-over-year in May—the steepest drop since the pandemic. West Coast port volumes, closely tied to Chinese trade, declined over 29%, though a limited rebound is possible during the pause.
Source: China’s General Administration of Customs
Meanwhile, China is actively reducing its reliance on soybean imports, a key ingredient in animal feed for its pork industry. In April, China announced plans to cut animal protein consumption by 10% by 2030 to boost food security.
Soybean imports surged to a record 13.9 million tonnes in May after delays eased, but longer-term reductions could cut imports by around 10 million tonnes annually—roughly half of China’s US soybean purchases. This shift could significantly affect global suppliers, especially the US and Brazil.
China-Africa Trade Set to Deepen
Beijing is accelerating efforts to diversify its global partnerships, with Africa emerging as a key focus. At a recent ministerial summit in Changsha, China announced plans to eliminate tariffs on imports from all 53 African countries with which it has diplomatic ties.
This proposal, part of the broader “China-Africa Economic Partnership for Shared Development,” builds on an existing scheme for least-developed countries and positions Beijing as a more reliable trade ally—especially as many African nations brace for potential new US tariffs.
China has long been Africa’s top trading partner, with USD 170 billion in imports last year—mainly raw materials like oil, copper and cobalt. But the relationship is shifting toward higher-value goods.
Countries like Kenya, Ethiopia, Uganda, and Tanzania are exporting more processed products, from premium coffee and roasted cashews to leather and artisan crafts. This shift is supported by Chinese-funded infrastructure and digital platforms like Alibaba, which are expanding access to Chinese consumers.
Though commodity demand remains sensitive to China’s economic cycles, the tariff initiative signals a longer-term pivot—laying the foundation for a more diversified, resilient trade relationship that could see African exports to China rival those to Western markets within a decade.
US Agriculture Faces Labour Shortages
As China reduces its reliance on US soybeans and global trade flows shift, the US farm economy is under strain—particularly from a growing labour shortage driven by immigration enforcement. Labor-intensive sectors like fruit, vegetable and horticultural farming have long depended on unauthorized immigrant workers to fill roles few US citizens are willing to take.
According to Pew Research, these workers made up about 5% of the total US labour force in 2022—playing a key role in agriculture, construction and manufacturing.
Source: USDA
President Trump’s renewed immigration crackdown—tightened borders and increased deportations—is already disrupting that workforce. Bloomberg reports growing absenteeism in farm and food-processing jobs due to fear of ICE raids. Even operations that don’t directly employ unauthorised workers are affected as labour tightens across supply chains. The Peterson Institute estimates that deporting 1.3 million workers could shrink US GDP by 1.2% by 2028 and push inflation higher.
Trump has acknowledged the strain, promising executive action to ease pressure on farmers. “Our farmers are being hurt badly,” he said this month. In the meantime, the sector faces rising costs, reduced output and higher food prices.
While mechanisation may help long-term, such technologies remain costly, often unsuitable for delicate crops, and tend to benefit large-scale farms. For now, US agriculture remains caught between tightening labour supply and evolving global demand.
