Summary
- The Middle East conflict drives fertiliser shortages and rising feed costs, tightening margins for dairy producers worldwide.
- Strait of Hormuz disruptions hit key dairy importers in the Gulf, reshaping trade flows from Europe, Oceania and South Asia.
- Regional inflation and reduced incomes in Iran and the GCC weaken dairy demand, adding pressure to global producers and exporters.
The effects of the Iran conflict continue to reverberate throughout global markets as Middle Eastern trade chokepoints face severe disruption.
For the global dairy industry, the immediate pressures are being felt through rising input costs, particularly of fertiliser, feed and natural gas. Since the conflict broke out, fertiliser, oil and natural gas prices have increased, squeezing production margins. More broadly, grain prices – particularly corn, wheat and sugarcane – are also facing upward pressure, which is affecting sectors from agriculture to biofuels.
Trade flow disruptions are costing Gulf countries and the rest of Asia, too – with both food and fuel supply volatility hitting markets and tightening global supply chains.
Below we look at the five key impacts from the crisis on dairy producers and manufacturers globally.
Fertiliser supply disruption
The Gulf exports up to 30% of global fertiliser products through the Strait of Hormuz, with around 30-35% of the world’s urea exports and about 20-30% of ammonia exports coming from the region.
But with shipping through the Strait of Hormuz effectively blocked, fertiliser availability is being squeezed – leading to increased prices and lower supply. In the first half of 2026, fertiliser prices are being projected at 15-20% higher, according to the Food and Agriculture Organisation (FAO) to the United Nations.
If the blockade drags on, producers are facing higher global feed crop production costs, which could lead to reduced profitability for dairy, especially in more intensive systems.
Feed cost shocks
With fossil fuel prices up, producers are looking at higher manufacturing and transportation costs, particularly diesel and petrol. This is likely to produce stronger demand for biofuels and lift maize and soybean oil prices, which are key feedstocks for ethanol.
Increased demand for these crops can have a knock-on effect on dairy feed availability and cost – leading to increased input costs for the industry.
Moreover, with increased demand from the biofuel sector, crop producers may plant more biofuel feedstocks to capture higher returns, tightening feed availability for food producers.
Lower future feed crop yields
If fertiliser prices remain elevated in the long term, crop farmers may be forced to ration fertiliser – potentially placing crop yields at risk and leading to further supply constraints and price hikes.
According to FAO, reduced fertiliser application poses risks in Asia, Africa, and Latin America, which could hit grain and oilseed yields later in 2026.
The ripple effect from lower yields is tighter global feed markets, which could further strain dairy production margins, potentially leading to slower production growth beyond 2026.
Trade flow disruption
The Gulf countries are major food importers, including of dairy. With a near-total collapse in shipping flows through Hormuz and limited alternative routes, the region’s import demand is already under strain, with imports from Europe, Oceania and South Asia increasingly disrupted.
According to the European Dairy Association, the Middle East represents over €2 billion annually in EU dairy exports and remains an important market for European dairy products. So far, no material disruption to dairy exports to the region has been reported, although exports are moving under increasingly complex logistics conditions as shipping routes adjust to the security situation.
New Zealand is Oceania’s biggest dairy exporter to the Gulf, with dairy products ($2.3bn) forming around 70% of its total exports to the region, with the Ministry of Foreign Affairs and Trade stating that exporters may face some short-term challenges in redirecting trade to other markets.
Meanwhile, Iran’s export ban has direct implications for countries such as Iraq and Pakistan, which source most of its dairy needs through its neighbour. But while Iran is largely self-sufficient in dairy, it’s highly exposed when it comes to feed availability – with the country sourcing almost all of maize and significant volumes of oilseed products via the Strait of Hormuz. With shipping disrupted, production is likely to come under strain.
Demand pressures
Production pressures caused by long-term input and supply volatility could drive food inflation up in the region. In Iran alone, inflation is already high – at +110% for general food and +108% for dairy and eggs year over year. This is putting pressure on consumer sentiment and demand – particularly for premium dairy categories and other price-sensitive imports.
According to FAO, real income has dropped between 14-18% during the blockade and food consumption has reduced by 17–20%.
Despite this, resolving the conflict over food security pressures is unlikely, according to former chief economist at the USDA. “[It is] very unlikely that food security concerns will precipitate a resolution to the conflict, particularly since Iran may be the country the most affected,” he told us. “Food inflation in Iran was already quite high; indications are that regional grain stocks are relatively ample.”
Loss of revenue from oil and fertiliser is the bigger risk for the region, as is the impact on tourism. “The region has also become a large transportation hub for airlines,” said Glauber. “As a result, tourism is also a very important revenue source. The region employs many foreign workers who sent remittances back to families. It is less clear whether employment will be affected, but if the war is prolonged, tourism and other industries could be hit sharply.”
