FAO-WFP Information note

KEY MESSAGES 
 

• The ongoing regional developments have disrupted shipping through the Strait of Hormuz, increasing volatility and costs across energy, fertilizer and agrifood markets.
• Iraq’s exposure is transmitted mainly through higher import/logistics costs and tighter availability
• A key systemic risk is fiscal as oil revenues finance most public spending and agricultural support; any sustained decline in oil prices/exports would weaken the Public Distribution System and input/output subsidies.
• Priority actions include monitoring markets and supply chains, protecting the 2026/27 input window, and targeting support to vulnerable farmers and households.

EXECUTIVE SUMMARY

The ongoing regional developments in the Middle East has disrupted trade and insurance conditions around the Strait of Hormuz, a critical corridor for oil, gas and fertilizers. The current shock reflects a broader regional and global disruption centered on this corridor, which plays a central role in energy and fertilizer trade. Unlike previous crises driven by food supply disruptions, the 2026 escalation represents an upstream input shock—affecting energy, fertilizers, and logistics—which transmits gradually into agrifood systems through rising production costs, reduced input use, and delayed impacts on yields and prices.The resulting rise in energy and freight costs is transmitting into agrifood markets through higher fertilizer prices and costlier food imports. For Iraq, impacts are expected to materialize primarily through prices, trade and logistics because the country depends on imported food and agricultural inputs and because public food and agriculture programmes rely on oil revenues.

Disruptions in the Strait of Hormuz—through which approximately 25 percent of global oil trade and a significant share of fertilizer flows pass—are also affecting global agricultural input markets. Estimates suggest that 20–30 percent of global fertilizer exports transit through this corridor, with approximately 1.3 million tons per month affected by recent disruptions. These dynamics introduce a lagged risk to agricultural production (6–9 months), particularly in import-dependent systems such as Iraq. 

Pre-crisis conditions already point to underlying vulnerabilities that shape current risks. According to the March GIEWS country brief, the 2025 wheat harvest is estimated at 4.4 million tonnes (about 4 percent below average) and wheat import requirements for 2025/26 are forecast at about 2.4 million tonnes (nearly 8 percent above the five-year average). 

Following a marked decline at the beginning of the season, recent improvements in rainfall and surface water availability have significantly enhanced overall water conditions. This recovery is expected to have a positive impact on both rainfed and irrigated agriculture. The improved water status has also raised raw water storage levels to exceed those recorded during the same period last year. As a result, these developments provide a short-term stabilizing effect on agricultural production, partially offsetting rising input costs and trade disruptions, while increasing system flexibility during the 2025/26 season.

Above-average rainfall is boosting Iraq's 2025/26 wheat outlook, with planned cultivation across ~4.4 million dunums using groundwater projected to yield ~3.81 million tons, and an additional ~3 million dunums of rain-fed land potentially pushing total production to between 4.6 and 5.9 million tons.

Retail staple food prices remained broadly stable year‑on‑year as of February–March 2026, underpinned by adequate domestic availability and government subsidy mechanisms; however, emerging upstream cost pressures—particularly from rising energy, transport, insurance and fertilizer costs—are increasingly evident and risk transmitting into selected, import‑dependent commodities (see Section 2.5 for prices and market dynamics).

If disruption persists into mid-2026, near-term food availability should remain supported by public and private stocks and the Public Distribution System (PDS). However, risks are likely to intensify during the 2026/27 input-procurement period (August–November) when  reduced affordability/availability of fertilizers, fuel and transport services could negatively affect application rates, yields and planting incentives. At the same time, a broader systemic risk relates to fiscal pressures, as oil revenues fund roughly 90 percent of the government budget, and any sustained oil shock would constrain PDS operations and agricultural support programmes.

In this context, the current shock should be understood as a system-wide cost and liquidity shock, where rising energy, transport and fertilizer costs interact with fiscal constraints, amplifying risks across food availability, access and price stability.

A large share of Iraq's population depends on civil servant salaries, which are also paid from oil revenues. A prolonged Hormuz closure could translate into increased fiscal pressures, affecting the government’s capacity to sustain public expenditure, undermining household purchasing power even for food that remains physically available.

Therefore, it follows that Iraq's physical exposure to a Hormuz closure is comparable to that of several Gulf economies, while its resilience architecture is more constrained — making targeted international financial support for PDS financing a near-term priority.

This information note provides an overview of emerging risks to Iraq’s agrifood system following the 2026 regional escalation, with a focus on transmission channels, market signals, and potential implications for food security.