Global supply chains face renewed strain as Strait of Hormuz tensions resurface

The Strait of Hormuz is vital to global shipping and supply chains as it is central to global energy trade, carrying about one-fifth of the world’s oil and roughly one-third of global fertilizer—making it a critical artery for agricultural production and food systems worldwide.

The 60-day U.S.–Iran memorandum of understanding (MOU) revived some shipping activity, including the movement of previously stranded vessels. However, with the MOU for the moment effectively cancelled, ships and transits are again reduced. Without progress toward a lasting agreement, supply chain constraints and elevated freight and energy costs are likely to persist.

This blog reviews shipping trends and key indicators—vessel traffic, freight rates and crude oil inventories—and their implications for Canadian agriculture. The renewed conflict in the Strait of Hormuz has heightened uncertainty across global energy and shipping markets, increasing the risk of supply chain disruptions and higher transportation costs. With crude oil inventories already tight and limited ability to rebuild supplies, freight and energy markets are likely to remain elevated. Unless tensions ease significantly, disruptions to shipping flows and energy markets could extend well into 2027, creating ongoing challenges for agriculture and food supply chains.

Global shipping and supply chains: Persistent disruptions and heightened vulnerability

The short-lived reopening of the Strait led to some improvement in shipping activity, but normalization was never reached (Figure 1). Hundreds of vessels were stranded during the height of the disruption, and ongoing mine-clearing efforts slowed recovery. Transit volumes rose slightly during the ceasefire but remained well below typical levels, estimated at roughly 30 percent of pre-conflict flows.

Figure 1: Strait of Hormuz transits remain well below pre-war levels

Sources: UN PortWatch, FCC Economics

Actual activity may have been somewhat higher due to limited vessel tracking, as some ships have disabled navigation systems. Even during the ceasefire flows remain constrained and uneven. A key issue was not just vessels leaving the region, but reluctance to return. Elevated security risks, high war-risk insurance premiums, and limited coverage availability continued to discourage inbound traffic.

As a result, global supply chains have had to adjust. With flows from the Persian Gulf constrained, buyers have shifted toward alternative suppliers, often over longer distances. These rerouted trade flows increase sailing times, reduce effective vessel capacity, and tighten overall shipping availability. These adjustments are now feeding directly into freight markets.

Beyond bulk shipping, container markets face additional strain as U.S. importers front-load shipments ahead of potential tariff expansions and the expiration of exemptions tied to port fees on Chinese vessels. This surge in demand is compounding existing constraints tied to higher fuel costs and disrupted shipping patterns.

These constraints are evident in freight markets. Bulk and container shipping rates remain elevated, reflecting geopolitical risk and longer voyage distances. Although the Baltic Dry Index has eased somewhat, it remains above pre-conflict levels, indicating continued tightness in vessel supply (Figure 2). Grain shipping rates from Canada’s West Coast to Asia have climbed above CAD $50 per tonne.

For Canadian agriculture specifically, higher ocean freight rates directly erode basis levels and reduce farmgate prices, particularly into Asian markets where margins are already tight. The impact extends beyond grain exports. Canada’s food sector relies on global shipping to import fresh produce, food ingredients, packaging materials, and processing equipment. As freight and energy costs rise, these pressures move through processing, distribution, and retail, contributing to higher food prices.

Figure 2: Global freight rate indices have risen following the Iran war

Sources: Bloomberg, FCC Economics

Fuel surcharges embedded in many shipping contracts mean recent energy price increases will continue to pass through transportation costs, increasing both input and logistics costs for Canadian agriculture. Looking ahead, freight rates will depend on whether constraints on Strait of Hormuz trade flows ease and how rapidly crude oil inventories can be rebuilt, with persistent disruptions and heightened supply chain vulnerabilities continuing to cloud the outlook.

Crude oil inventories: The other supply chain pressure point

Beyond shipping, crude oil inventories are now a key factor shaping the outlook. In response to Strait of Hormuz disruptions, countries released significant oil reserves, including supplies from both the U.S. and China. These actions helped stabilize markets in the short term, but once reserves are drawn down, there is less buffer against further supply shocks, increasing scarcity concerns and the risk of higher oil prices.

As a result of the releases – including oil that was exported – preliminary June 2026 data indicates that U.S. crude inventories are sitting 17.2 percent below the five-year average (Figure 3). Rebuilding inventory also requires those countries to buy, which increases demand for oil. Until inventory levels recover, supply chains will remain more vulnerable to renewed disruptions and price volatility.

In addition, several energy facilities and refineries in the Middle East have been damaged during the conflict, limiting processing capacity in the near term. The time and capital required to restore these assets will likely prolong supply constraints and extend the broader market impacts even if the conflict ends and a long-term agreement is reached.

Figure 3: U.S. crude oil inventories reflect strong exports and reserve releases

Sources: US EIA, FCC Economics

With inventories already below normal, any renewed interruption to shipping through the Strait is likely to amplify price volatility across crude and diesel markets. For agriculture, this translates into sustained pressure on input costs at a time when margins are already near breakeven. Higher crude prices tend to lift diesel prices, particularly during peak periods such as seeding and harvest (Figure 4). Fertilizer markets are also affected, as energy costs and global logistics disruptions increase both price risk and the potential for limited availability during critical application windows.

Figure 4: Farm diesel price projections shifted following Middle East conflict

Sources: Alberta farm inputs, FCC Economics

Bottom line

The end of the U.S.–Iran ceasefire has renewed uncertainty for global shipping and supply chains. Although the U.S.–Iran MOU temporarily supported the reopening of the Strait of Hormuz, shipping activity remained limited. The outlook now depends on how the conflict evolves and whether a new agreement can be reached, with key risks including shipping security, higher insurance costs, and potential transit restrictions in the Strait.

If tensions escalate, disruptions could spread to other critical trade routes, including the Red Sea, increasing freight costs, extending transit times, and further straining global supply chains. Continued route disruptions, elevated insurance premiums, and constrained energy supplies would add pressure to transportation and energy markets. As oil inventories decline and trade flows shift to longer, less efficient routes, these pressures could persist into 2027.

For Canadian agriculture and food, the result would be continued margin pressure from higher input costs and reduced export competitiveness. Volatility is likely to persist until a durable ceasefire is reached, a longer-term agreement is established, and shipping conditions stabilize. In the meantime, businesses will need to closely monitor geopolitical developments and adapt their marketing, logistics, and risk management strategies accordingly.

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Leigh Anderson

Senior Economist

Leigh is a Senior Economist at FCC. His focus areas include farm equipment and crop input analysis. Having grown up on a mixed grain and cattle farm in Saskatchewan, he also provides insights and monitoring of Canada’s grain, oilseed and livestock sectors.

Leigh came to FCC in 2015, joining the Economics team. Previously, he worked in the policy branch of the Saskatchewan Ministry of Agriculture. He holds a master’s degree in agricultural economics from the University of Saskatchewan.