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Is the ceasefire in the Gulf too late to stop food prices rising?
If we continue more than 40 days 50, 60 we're talking of levels of COVID-19, because this will affect economic growth.
Because as food inflation goes up, overall inflation goes up.
That means that countries will have to again increase interest rates.
It's World Business Report from the BBC World Service.
I'm Sam Fenwick. what that means for the price of food in your supermarket basket.
So the ceasefire in the Gulf was meant to reopen the Strait of Hormuz, one of the most important shipping routes in the world.
Around a fifth of global oil and gas flows through it.
But analysis of shipping data by the BBC... suggests traffic is still far from normal.
Just nine vessels, including two oil and chemical tankers, have passed through the strait since the ceasefire was announced late on Tuesday.
In normal times, around 140 ships make that journey every day.
Oil prices have climbed back towards around 100 a barrel, with little sign yet that the route is fully reopening.
And farmers in particular are really feeling the impact of those high fuel costs.
Here are some rice farmers in Thailand.
I want the whole country to stop growing rice so the government has no rice to eat, and then they could feel the hardship.
The hardship is indescribable.
You're ready to harvest rice, so you load a container onto your truck to buy fuel.
But no one sold fuel to you.
I waited for three days to buy fuel so that I can harvest my paddy field.
On the fourth day, I protested at the gas station until they finally sold fuel to us.
And what was the result?
Our rice became too dry and too brittle.
We could only sell it at a discount because they claimed the rice was too dry.
Why didn't they ask the reason we didn't harvest earlier?
We didn't harvest because we couldn't get fuel.
What will be left for us?
The government announced that they will help with this and that, but no aid came.
I've never seen it.
I only hear words that they will help.
We don't burn rice straw, we plant other crops after we harvest rice.
We do everything, but we have never received any support or help from the government.
Now, fuel is available, but the price has gone up so much that we can't afford it anymore.
If you ask whether there's fuel to be bought, it is available, but we don't have the money to buy it.
Because when we sold our rice, the money we got back was not enough.
Whatever the government tells us to do, we follow all.
Growing rice now will lead to a loss, so I find odd jobs making 100 to 200 baht a day just to get by for now.
If we do farming and lose money, what's the point in doing it?
Why keep doing it?
Our expenses don't decrease, only our income keeps dropping.
Rice farmers there in Thailand.
And it's not just fuel.
The conflict in the Gulf is also pushing up the cost of fertiliser, a key ingredient in global food production.
Governments are already stepping in.
India has increased fertiliser subsidies to try and shield farmers from global rising prices.
But at the same time, supply is tightening.
China has already curbed exports, and countries like Turkey and Russia are limiting shipments of nitrogen fertilisers to prioritise their own spring planting.
Because fertiliser underpins global food production.
There is concern now that that could quickly feed through into food prices.
So how serious is that risk?
I spoke to Maximo Torero, chief economist at the UN's Food and Agriculture Organisation.
The core element here is the timing and the duration of the closure of the Strait of Hormuz.
Why is it important?
Through the Strait.
We have 35 of the crude oil exports in the world, 20 of natural gas exports in the world, 20 to 30 of exports of fertilizers in the world.
What that means is that, as the input costs are going up, so it is affecting them in terms of the types of decisions they will have to make.
So what choices they have to make?
I plant less.
I plant the same, but with lower inputs.
That will affect my yields.
Or I switch to crops that have more capacity to absorb nitrogen.
For example, that's moving from corn, maize to soybeans, for example.
Or four, I sell more to biofuels.
What that means for the end of the year and for next year?
Less supply of food and therefore that will affect prices, that will create food inflation and that will affect overall inflation of countries.
That is really important because it's not right now, it's at the end of the year and the next year.
Prices will start to rise globally for food, you're predicting not until the end of this year, into next year.
Today, we have enough food in the world.
We have enough staples in the world and high value commodities.
So the prices of the final commodities are not going to be aligned with the cost of increase of the inputs right now.
But if the conflict continues and this trade continues to be closed yes, we will be start facing bigger prices by the second half of the year and the whole next year.
The last time we had a kind of energy spike like this and a concern over the price of fertilizer was 2022, when Russia declared war on Ukraine.
We did see countries putting export restrictions on food, particularly India stopped exporting rice.
Are we at that stage yet?
And if we're not, when would we get to that stage?
So we are not.
We have some restrictions to certain inputs right now from some countries, but we are not at the stage yet of export restrictions of commodities.
We are doing all the efforts possible to bring as much as information on the availability of food in the world to avoid that to happen.
But again, as we move to the period of 60 to 90 days of closure, countries will start to put policies in place to protect their own food security.
Yes, we need to be ready that as time goes on, We need to be prepared on social protection.
We need to be prepared on supporting the most vulnerable people, which will be impacted.
Now, who will be the most vulnerable for increasing prices of food commodities?
The food importing countries, which are in a tough financial situation.
The rich countries can pay.
Their import bid will increase, but they can pay.
But the poorest countries won't.
It's those most vulnerable countries that are at the mercy of that.
What's your message then to the global community when it comes to the flow of food?
Our message right now is first we need to find any potential alternative route, no matter the size.
Any other source that could supply these inputs will be crucial and work with governments so that they avoid putting export restrictions right now.
And then, of course, we need to focus on the farmers and give them access to finance so that they can continue operating.
Temporal access so that they can operate.
At the country level, we are arguing that the IMF should reopen the food truck driven window that they did through Ukraine and to help that, to support the balance of payments of those countries which right now are on the need.
It's not for everybody.
And that's where we need to be very targeted.
We need to lease the countries that right now are entering the crop season, that don't have the financial resources, so that we can temporarily support them through balance of payment support so they can buy the fertilizers they need so that they keep the planting.
A country like Bangladesh, which is self-sufficient in rice, huge population.
You don't want Bangladesh not to be self-sufficient in rice, because if not, they will have to import from outside.
You want them to be able to plant.
How quickly can we get back to normal flows through the Strait?
Look, if we open the Strait today, it will take three months more or less to stabilise the flow and the insurance cost, but not at a full operational capacity because it depends on how much damage has been done to the infrastructure.
That damage that margin that won't be open assume it's 20 will take a year or more to be able to be fixed.
So that's why we are saying we are talking of the full next year to be able to recover.
So even if the war finishes tomorrow, there's still a big impact on farmers and potentially on food pricing.
Of course, but it will be a minimum impact relative to the potential impact if it goes 40 or 50 days.
So the opportunity cost of not stopping today is significantly higher, significantly higher.
Even if we continue more than 40 days, 50, 60, we're talking of levels of COVID-19 because this will affect economic growth.
Because as food inflation goes up, overall inflation goes up.
That means that countries will have to again increase interest rates.
That means economic growth will go down.
That's a really bleak picture that you've painted there.
If it is, if it continues for a longer period.
It is not, despite all the concerns, if it stops in the next week or two.
And we need to be very clear about that because look, our job is not to come out and create panic so that people capture our messages.
Our job is to say the truth.
And the truth is we have food today.
OK, the problem is how much food we'll have next half of the year or the next year.
But if we continue, yes, the picture is not good because it's a serious problem.
It's a problem where we cannot have a supply response.
That was Maximo Torero, the chief economist at the UN's Food and Agriculture Organization, speaking to me earlier.
And listening to Maximo is Susan Schmidt, portfolio manager at Exchange Capital Resources.
She joins us today from Chicago.
So, listening to Maximo there, he says that we're going to be feeling the impact of these higher prices on fertilizer into the end of the year, towards the next six months and into the end of the year.
Now, just looking at, you've got some quite important elections coming up, haven't you, in November.
Is that going to be quite bad timing for the Trump administration?
Well, none of the politicians want to talk about this right now because of that exact fact.
It is going to be very bad timing.
It is going to put pressure on prices just at the time when the politicians really don't want to have people focusing on the economy or increased prices, because that's something that obviously not good for the people in power.
It's interesting for the markets as well.
It's going to cause disruption, as investors now are looking at this, trying to gauge the extent of the timeline.
How much impact will this have on prices going forward, both for the profitability of companies and because of the supply demand issues that need to be resolved internationally?
Investors are having a hard time pinning this down because we don't have clarity around the conflict and what is happening with production because of goods being delayed, not being able to get through this trade.
I thought it was interesting what Mr Torero was saying about.
You know, if the 60 to 90 day target is when it really might start to hurt and really start to have inflationary impact into next year,
We're at around 40 days at the moment, aren't we?
Six weeks or so. into this.
So there's a little way to go and there is some, perhaps some movement on getting it open.
We are just at the beginning of this.
The conflict has not yet been resolved.
There's a temporary pause.
And I think investors are looking at this hopeful that we will return to what had been a very optimistic market, with investors anticipating gains from AI technology being willing to spend on infrastructure around that, boosting market returns overall.
Investors are now looking at this, hopeful that this temporary respite will allow for the straight to open up again.
But should it not?
You've seen lots of volatility in the market, where investors are backing away because of concerns over profitability.
We're only, as you said, 40 days in, and this could extend much further.
Susan Schmidt, stay with us because we're going to come and talk to you again in just a moment in the programme.
You are listening to World Business Report from the BBC World Service with me, Sam Fenwick.
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So, as we've been hearing, disruption in the Strait of Hormuz is putting pressure on prices and world leaders are now working on how to get it fully reopened.
The Trump administration has been pressing his European allies for concrete commitments on how they would help to secure safe passage for ships.
It was discussed yesterday when the NATO Secretary General, Mark Rutter, met President Donald Trump in Washington.
Mr Rutter says a coalition of countries is working together to ensure the free movement of vessels through the strait.
This is about practical support.
It is about, when you take my country, the Netherlands, announcing yesterday.
It will probably be about mine hunters, it will be about frigates, it will be about radar technology.
And so each country is now looking for what they can do to contribute to this, to make sure that the Strait of Hormuz stays open.
Of course, it is early days, as you said, right?
It's two days into the ceasefire, so we have to see what happens with the shipping lanes as we now go forward day by day.
And I know the President is very keen on making sure that...
The sea lanes are open as soon as possible.
But this is practical support, one with the campaign itself and now in the next stage, to make sure that this principle of free shipping is maintained.
Now Britain is leading a group of around 40 countries trying to draw up a military and diplomatic plan to reopen and safeguard the route.
But there are warnings from Iran.
The country's supreme leader says the regime will take what he calls the management of the Strait of Hormuz into a new phase, without giving any further detail.
Iran's deputy foreign minister, Saeed Khatib Zaidi, says that all vessels now must have permission to pass through the waterway.
Until now, the Strait of Hormuz is open.
Of course there are technical restrictions because of the war zone and because of many arrangements that Iran did during the war, during this aggression against Iran.
Safe passage is secured.
Strait of Hormuz is open, but of course, every each tankers and every each vessel should make necessary arrangements with the Iranian authorities to be able to securely pass this rate.
Michelle Vesey-Bachman is a senior maritime intelligence analyst at Wynwood.
It's a maritime AI company.
And she says that there are huge challenges ahead to open the strait.
The main difficulty is that there are unclear and ambiguous rules applying to the Strait at the moment.
And it's very clear, with the traffic limited to the extent that it was before the ceasefire, that the selective, permissions-based blockade that Iran has put in place remains.
And if anything...
They've hardened their position to maintain leverage during ceasefire talks.
So they've claimed now to have mined the Strait of Hormuz in order to force ships to transit through this new route, which has now been dubbed the Tehran Tollbooth.
They say that the international navigation channel has been mined.
And quite clearly, I think, the legal position and as stated by the International Maritime Organization, the United Nations agency that regulates shipping you know, freedom of navigation does not involve tollbooths and this restrictive system we see in place.
So it's very, very difficult.
It's all up for play at the moment.
We were talking this time yesterday to Hapag Lloyd, one of the large shipping companies that operate around the world.
And they were very unclear.
Really, I think is a fair way of summing up what they were saying about what actually could happen.
And it didn't sound... that they would be moving their ships anytime soon.
Do you see ships moving in any kind of quantity anytime soon?
Not under these current conditions.
I mean, firstly, Western ship owners can't pay to the Iranians because of sanctions in place.
There are no safety and security guarantees that are needed for the welfare of the seafarers on the ships that are going through.
Marine insurers also need those guarantees and also insurers And in some cases, the costs, the additional war premiums are too high to allow for transit.
And there's something like a thousand ships stock.
So then you've got the logistics of trying to move them if and when they are allowed to move.
Yeah, exactly.
And that's something that's going to take weeks, not days.
And then, in order to have global oil energy commodities trades back to normal, that's going to take months, not weeks.
It's, as I said, very difficult.
And we only have two weeks on a ceasefire.
Exactly.
Let's bring John Storpet into our conversation.
He's Marine Director at the International Chamber of Shipping.
Because, beyond the impact on prices and global trade, there are also growing concerns about the welfare of crews on board these ships, many of whom are operating in increasingly uncertain and potentially dangerous conditions.
John, just give us a picture really, of how long people have been on these ships and what conditions are like.
It was an immediate concern for us was the welfare of the people who were stuck in the Gulf as a consequence of the emergence of this conflict.
Our principal concerns were for things like the provision of potable water and food and fuel after a number of weeks, but that has been met.
The big concern is how long does this endure for and how easy is it to get people in and out of this region for as long as these ships are trapped there?
And obviously the ceasefire announcement was a huge moment of encouragement for us all.
Because we thought we'd start to see these ships moving.
We'd start to see the free flow of trade.
Today, I think that's rolled back a bit.
But we are all as a community working to ensure that these seafarers are properly provided for.
There's also the IBF agreement in place, which...
It gives them increased wages and the right to repatriation although, given that this is still ostensibly a war zone, that is complicated.
And when you talk about repatriation, you've said it's challenging because it's still effectively a war zone.
But how do you get people off the ships in the first place to be able for them to go home?
I mean, the mechanics of it are very, very complicated in a place where you've got a thousand and this is a thousand sea-going ships.
So this is ocean-going ships.
This is not the local traffic.
This is not offshore vessels.
There's other vessels in there that are perhaps not being accounted for.
It becomes incredibly complicated because you've got to get access to them, whether that's by helicopter, whether that's by lighter.
It's very, very difficult because they're all in quite concentrated spaces, and so the logistics itself make it difficult to take people off ships when they need to.
Some ships have been hit, haven't they?
And some people have died.
And that's the principal concern.
We're in a warlike situation.
At least one of the parties is attacking merchant vessels or has attacked merchant vessels.
And it's resulted in casualties.
And that is absolutely unacceptable.
These are innocent seafarers going about their daily business to serve world trade, which benefits the global commons.
What about food, medicine and other necessary things that they might need?
Are they able to get them on board?
For the time being, it seems that that's the case.
And we are in dialogue with all of the states.
And the big problem in that respect and in the context of the wider crisis and its impacts, it's relatively small is that the prices for these sorts of things have gone up.
But from what we're hearing today, the provisions are getting to the ships?
Presumably they'll be going about their daily tasks that they would go about if they were at sea maintenance of the ship.
Yes, they will be.
I mean, as much as one can at Anchor, seafarers are very, very hardy people.
They do a tough job and they do a very, very technically demanding job.
And so they will be going about their business with regularity.
But what we need and Michelle said alluded to this is we need an international solution so that these people can get out and keep doing their job in the normal way that they do, rather than being bottled up.
Michelle, how close are we, do you think, to that international solution?
I think, at best, what we can hope for is that a humanitarian corridor of some type is established to allow ships to exit the Strait of Hormuz, much in the same way as the Black Sea Grain Corridor was put in place after Russia invaded Ukraine to allow Ukrainian grain to out of the Black Sea.
And, depending on Iran's position, let's hope that we can put something in place like that in order to at least allow seafarers to leave if they need.
It was difficult that though, wasn't it, at the time?
It was on, it was off, it was on again, and then it was off again, and then some of the boats were being attacked, as they were supposed to be in that humanitarian corridor.
So even then, it's not plain sailing.
No, and I think the grains corridor.
I think Russia withdrew its cooperation six months into it, but there was, in the end transit, of grain did end up coming out and it remained there.
But it's the only solution, I think, that's on the table at the moment, and it will require coordination and agreement from Iran, given the current stance that they have in place as of today.
Could I come in?
Yeah, please do.
Go for it, John.
So, I mean, I agree with Michelle entirely.
We need an international construct.
And I think the grain corridor is the only equivalent that we've seen in recent years.
I think the thing I would stress in that respect is that this is a very different sea space.
It's very, very narrow.
And so the influence of literal states will be much more significant than it was in the grain corridor.
But also, I think there's been a lot of talk about tolls, and the establishment of tolls as a norm for transits through this region would set a very, very dangerous precedent.
And we absolutely have to ensure that freedom of navigation and the right to innocent passage are respected by everybody that is involved in any solution to this.
So that was John Stopet there from the International Chamber of Shipping and Michelle Vesey-Bachman, Senior Maritime Intelligence Analyst at Wynwood.
Susan Schmidt is still with us.
And, interestingly today, those high energy prices affecting big business in the UK.
OpenAI says it's going to pause its main UK data centre Stargate, blaming those high energy costs.
Do you think we could see that more with these big data centres that are very energy intensive?
I think we will see more of that.
Remember that, as we've talked about the ongoing development in AI, data centers are critically important.
It's been a big source of projected capital spend.
And there have already been problems in identifying the power sources for these data centers and trying to find reasonable places to build them and be able to access power.
This is going to exacerbate that problem.
And so the open AI announcement today, I think is just the tip of the iceberg.
We're going to hear a lot more announcements about the increased costs as a result of this Iran conflict in the next few weeks, as we've just closed out the first quarter, and we'll have company management talking about how their business has performed in the first quarter of this year and what they see as the pressure going forward.
And then there's a move, isn't there for countries and economies to move towards renewables solar panels?
And actually China is strengthening its economic position as that happens, because they develop and have grown so much green tech industry with solar panels and wind turbines.
Yes, any alternative form of power at this point is going to be rewarded and embraced.
As the pressure point around oil and gas necessary supply becomes more and more acute, the green energy substitutes, which had been seen as being too expensive to embrace and adopt, are now going to become a possible solution and potentially more economical to try and embrace and adopt.
And just very briefly, this relationship between you know countries and China, which has obviously caused some concern under the Biden administration.
How is that going to play out?
I think that's still an unknown.
We have a lot of issues with trade, as you have heard, with our tariffs that still have yet to be settled.
I don't think there's clarity in the market and certainly not clarity in investors on where that goes.
It's an interesting one we will continue to look at here on World Business Report.
Thank you very much, Susan Schmidt, for your time.
Thank you to you for listening.
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