A new, highly concerning shock report from the investment giant Goldman Sachs confirms the worst fears of analysts, warning of an imminent "nightmare" in food prices. According to the US investment bank, Southeast Asia is likely to face a food supply shock, as food becomes more expensive due to higher oil and fertilizer prices caused by the conflict in the Middle East, as well as exposure to the effects of a potential strong El Niño phenomenon in late 2026. "The oil shock from the conflict in the Middle East has already been reflected in the Consumer Price Index (CPI) data that are sensitive to fuel, and higher fertilizer prices will increase the cost of agricultural inputs," Goldman noted, adding that this will force governments in the region to reconsider the trade-off between food and fuel. "A potential strong El Niño phenomenon in late 2026 could cause another shock to food supply, just as pressures from oil and fertilizers are passed on to the food chain," the investment firm added.
Among Southeast Asian nations, Goldman Sachs expects that Singapore and the Philippines will be directly exposed to global food price shocks due to their status as net food importers. The rest of Southeast Asia also remains vulnerable to food price shocks. While Malaysia and Indonesia may appear more protected due to their palm oil industries, both turn into net food importers if the palm oil sectors are excluded, the report notes. In Thailand, more than 90% of fertilizers are imported, which leaves the country exposed to global food price shocks through higher costs for agricultural inputs, Goldman pointed out.
The impact of fuel shortages
The fuel shortages resulting from the war in Iran are likely to be reflected in food prices. As energy is a key production input and transportation cost for commodities like food, fluctuations in oil prices are transmitted quickly along the supply chain, according to a study by the London School of Economics and Political Science. Ongoing disruptions in oil supply could also further increase the price of fertilizers from the Middle East and potentially affect their availability, according to an OECD report. "This could affect planting and harvesting seasons throughout 2026 and 2027, reducing yields and potentially leading to higher food prices over time," it states.
The Goldman report estimates that the combined shocks from oil volatility, fertilizers, and the effects of El Niño will add an average of 1 percentage point to Southeast Asia's food inflation after six months, and 2.1 percentage points after 12 months, before moderating to 2 percentage points at 18 months. "These estimates should be taken as additional pressure on the usual food inflation trend and not as forecasts for total food inflation," it added.
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