A Dual Threat: El Niño’s Return and Geopolitical Strife Converge on Global Commodity Markets
Investors navigating the intricate landscape of global commodities face an unprecedented confluence of challenges as a powerful El Niño weather phenomenon threatens agricultural output, coinciding with ongoing geopolitical turmoil in the Middle East that has severely constrained critical supply chains. This double-edged risk profile promises sustained volatility across energy, fertilizer, and food markets, demanding heightened vigilance from market participants.
Climate scientists are sounding alarms over the increasing likelihood of a significant El Niño event emerging in the coming months. U.S. meteorological forecasts indicate a one-in-three probability of a “strong” El Niño developing between October and December of this year. European climate models suggest an even higher chance of a very intense, or “super El Niño,” though such predictions, particularly at this time of year, are subject to a degree of uncertainty due to the “spring barrier.”
Traditionally, an El Niño is declared when sea surface temperatures in the tropical eastern Pacific ascend 0.5 degrees Celsius above their long-term average. A “super El Niño,” while not an officially recognized scientific classification, denotes an exceptionally robust phase of the El Niño Southern Oscillation (ENSO), characterized by sea surface temperatures in the eastern Pacific soaring at least 2 degrees Celsius above normal levels. These conditions typically follow a multi-year La Niña phase, which tends to exert a cooling effect on global temperatures.
Chris Jaccarini, a senior analyst specializing in food and farming, articulated the gravity of the situation, highlighting 2026 as another year where conflict and climate risks impose substantial economic costs. Jaccarini noted that food prices are under pressure from two directions: climate extremes disrupting production in key growing regions, and a food system still heavily reliant on fossil fuels, which translates into vulnerability to price spikes in natural gas, fertilizers, transport, and packaging. The prospect of a strong El Niño is therefore critical, as it has the potential to supercharge weather risks in a climate already destabilized by human emissions, exacerbating inflation driven by elevated fossil fuel costs.
Geopolitical Pressures Amplify Market Strain
The energy sector has experienced significant upheaval, with oil and gas prices surging due to the Iran conflict severely disrupting supplies through the strategically vital Strait of Hormuz. This narrow waterway, connecting the Persian Gulf and the Gulf of Oman, typically facilitates roughly one-third of the world’s seaborne fertilizer trade. However, shipping activity has effectively ceased since U.S. and Israeli airstrikes targeted Iran on February 28.
While world leaders recently welcomed the announcement of a temporary U.S.-Iran ceasefire, market experts express skepticism regarding its ability to pave a clear path to lasting peace. The weeks of supply disruption have already inflicted a considerable and enduring impact on global markets. These sharp increases in fuel and fertilizer costs coincide critically with the onset of the U.S. planting season, generating significant apprehension among farmers about elevated input prices and the potential for reduced crop yields.
Paul Donovan, chief economist at UBS, underscores the inherent link between energy prices and food costs, given that fertilizer manufacturing is highly energy-intensive and natural gas serves as a crucial feedstock for various chemical compounds. Donovan recently observed that while higher fertilizer prices are a concern, they might not represent the most significant agricultural price threat this year. He posited that if 2026 indeed produces a “super El Niño,” the challenges posed by drought and restricted water supplies could overshadow nitrogen shortages as the primary concern for agricultural markets.
Significant Risks to Global Food Security
The convergence of these adverse factors presents significant risks to global food security. Analysis released last month by the United Nations World Food Programme (WFP) warned that the number of acutely food-insecure individuals worldwide could revert to levels last observed at the outset of Russia’s full-scale invasion of Ukraine in early 2022. The WFP’s projections are grim: an additional 45 million people could face acute hunger if the Iran conflict persists beyond June and crude oil prices remain above $100 per barrel. This would tragically add to the existing 318 million people already grappling with food insecurity globally.
Dawid Heyl, co-portfolio manager for the global natural resources strategy at Ninety One, emphasized the inherent risk an El Niño event poses to worldwide food production. He noted that the magnitude of this risk is contingent upon the climate phenomenon’s timing, intensity, and duration. Heyl expressed greater concern about the Iran conflict’s impact on nitrogen fertilizer production and availability compared to previous geopolitical events, such as the Russia-Ukraine war, from a food inflation perspective. He cautioned that a scenario where two such negative factors—a powerful El Niño and the Middle East crisis—combine, could result in an exceptionally challenging market environment.
Specific regions and countries are particularly vulnerable to the potential impacts of an El Niño. India, Australia, Brazil, and Argentina are cited as nations that could experience significant exposure, albeit for diverse reasons related to their agricultural output and climatic patterns. The European Union has also highlighted that an El Niño event later this year could subject northwestern Ethiopia, South Sudan, and Sudan to severe dry conditions, posing a substantial threat to their primary agricultural seasons.
Navigating Food Security in a Volatile Future
For investors, these compounding risks underscore the necessity of understanding the fundamental interconnectedness of energy markets, agricultural production, and global stability. The energy sector’s role in the production and distribution of fertilizers positions it squarely at the center of the food security challenge. Volatility in natural gas prices, in particular, will continue to have direct implications for global food costs and supply.
Jaccarini of the Energy and Climate Intelligence Unit stresses that addressing deepening food security fears requires a pragmatic recognition that risks to the global food system are not transient. In an era where traditional geopolitical alliances are under strain, international cooperation becomes more vital than ever. Mitigating food price volatility hinges on achieving collective progress towards net-zero emissions. Furthermore, climate finance from affluent nations to producer countries with limited climate resilience capabilities is essential to empower farmers to adapt to climatic impacts and protect both crops and livelihoods.
The unfolding scenario presents a complex challenge for the global economy, demanding strategic foresight from investors. Understanding the interplay between climatic events, geopolitical flashpoints, and the foundational role of energy in agricultural supply chains will be paramount for navigating the commodity markets in the coming quarters.
