Israel and Iran have started attacking each other.
The conflict has already had an impact on oil prices.
Grain markets tend to follow the oil and energy markets.
If the conflict causes oil prices to rise, this could flow through to grain pricing
It may be short-lived if cooler heads prevail.
Israel attacked Iran last week, which has resulted in an escalation, with missiles hitting Israel over the weekend. We have already been living in a geopolitically volatile period, and this doesn’t help.
Oil has been the immediate barometer. Brent crude jumped sharply, briefly up more than 7%, before settling around 4-5% higher. The nervousness is simple: Iran controls the Strait of Hormuz, a shipping lane responsible for nearly 20% of global oil trade. Any disruption here sends alarm bells across supply chains. The conflict has already seen Israeli strikes on Iran’s critical South Pars gas field, while Iranian drones targeted Israeli refineries in retaliation.
Energy infrastructure is becoming part of the battlefield, and markets are watching every move. We can see in the chart below the extent to which the oil market has reacted to the concerns of the conflict on the oil trade.
What impact could this conflict have on Australian farmers, other than higher diesel prices?
The increase in diesel costs will directly contribute to higher production costs for grain growers. As many will be aware, I always like to find a positive when possible. Is there a way that high fuel/crude prices are good for grain growers?
My favourite thing about commodities is how closely they are connected. So let’s go down a little logic rabbit hole.
Crude oil is refined into road fuel. In the past twenty years, huge corn volumes in the US have been converted to ethanol. Ethanol is mixed with fossil fuels to power vehicles. There is a close relationship between crude oil pricing and ethanol, which can be seen in the chart below. If crude oil pricing increases, it can lead to increased ethanol.
In the US, approximately 40% of corn is converted to ethanol. This is a huge volume considering that the US is the world’s largest producer. These two commodities have a very close relationship to each other. As demand for ethanol moves up and down, so does the corn price.
The association between wheat and corn is well documented, and we regularly look at this in our articles. Corn and wheat are interchangeable in many instances (feed).
Over time, movements in the price of these two grains tend to follow one another
So let’s run it over.
If this conflict increases, the potential disruption to global oil supply is significant. Iran controls the Strait of Hormuz, through which roughly 20% of the world’s oil exports pass. Any threat to shipping in this corridor—whether through direct military action, blockades, or increased insurance and freight costs—would instantly tighten global supply and push prices higher. Given the already finely balanced nature of global crude markets, even small disruptions can trigger sharp price spikes, affect refinery margins, and add substantial costs across transport, manufacturing, and food supply chains worldwide.
If fuel prices increase, this can be reflected in higher prices for biofuels, which in turn increases demand for grains.
So whilst we might end up paying more for our fuel on farm, we could have a higher price. That being said, if cooler heads prevail, then prices could decline just as rapidly.
Andrew Whitelaw is a director of Episode3.net and co-host of the Agwatchers podcast.