Gulf food strategy tested as Iran war snarls shipping routes

By Sarah El Safty and Maha El Dahan

DUBAI, March 5 (Reuters) – Wealthy Gulf states are facing their biggest food security challenge since the 2008 global food crisis, as the Iran conflict threatens ports and disrupts shipping through the Strait of Hormuz.

The war is testing strategies adopted after 2008, when soaring food prices prompted Gulf nations to shift toward import-dependent policies reliant on pouring cash into agricultural investments abroad.

That strategy did away with prior expensive programmes that sought to raise domestic production of strategic grains but ran up against the region’s brutal climate and lack of water. Saudi Arabia, for example, began to scale back a domestic wheat-growing programme in 2008 to become almost exclusively reliant on imports.

Now with global shipping disrupted and airspace closed in many countries in a region that is 80%-90% dependent on food imports, price surges and scarcity of some goods are expected.

“With over 70% of GCC foodstuffs being imported through the Strait of Hormuz, Gulf states face shortages if the war persists,” said Neil Quilliam, associate fellow at think tank Chatham House.

“While GCC countries have taken steps to diversify suppliers and ensure sufficient stores to withstand disruption, this can only last several months. At this point, price increases and longer lead times will start to hit the markets.”

HORMUZ CHOKE POINT

Analysts warn that even temporary blockages in Hormuz that force rerouting from major ports to smaller ones will create strains.

Most major Gulf ports, including Dubai’s Jebel Ali and primary ports in Kuwait, Bahrain, Qatar and the Saudi Gulf coast, are located where most incoming traffic would have to pass through the Hormuz waterway.

Iranian attacks struck many of those lifelines including Jebel Ali, the region’s largest container port, this week, suspending operations for hours.

“The biggest immediate effect will be due to the blockade of Jebel Ali, serving about 50 million people,” Ishan Bhanu, lead agricultural commodities analyst at Kpler, said about the Dubai port that also serves as a re-export hub to the region and beyond.

UAE ports outside the strait have limited capacity. Khorfakkan can handle 5 million twenty-foot equivalent units (TEUs) and Fujairah less than 1 million and would be hard-placed to make up for capacity lost at Jebel Ali or Abu Dhabi’s Khalifa Port.

“Qatar, Kuwait, Bahrain and Iraq effectively become landlocked and will depend on overland routes through Saudi Arabia,” Bhanu added, warning of costly congestion.

‘CRAZY’ PRICE SPIKE ON BANANAS, OTHER PERISHABLES

Those bottlenecks are yet to show and the UAE has said its strategic reserves of vital goods cover four to six months of needs. It urged residents to report unjustified price increases through a dedicated hotline.

Supermarket staff told Reuters shelves remain largely stocked, though suppliers are taking longer to replenish certain products. Dubai this week temporarily relaxed truck-movement restrictions to maintain the flow of goods.

The start of Iran’s strikes on the Gulf on Saturday prompted many to hoard and caused a temporary dip that further fueled panic, a dry run for what could come.

“It is worth noting that perception risk matters and even if stocks are sufficient now, public runs on supermarkets can spook the public,” Quilliam said.

A few residents already noticed some price rises.

“Is it just me whose groceries cost three times as of yesterday?” one shopper wrote in a local Facebook group on Tuesday. “Even the bananas cost have gone crazy.”

Goods like bananas that spoil quickly are particularly vulnerable to any shipping rerouting that makes journeys longer. Flying in perishable food when airspace opens to cut the journey will raise prices.

“If food is flown in or brought in overland, that is going to be more expensive than shipping,” said Justin Alexander, Gulf analyst at GlobalSource Partners and director at Khalij Economics.

“It may be that governments choose to absorb some of that cost through subsidizing the food. And they’ve certainly done that in previous crises.”

GULF COOPERATION

Apart from investing abroad to secure access to major food production bases, Gulf states have also been constructing modern silos capable of storing hundreds of thousands of tons of strategic grains in the past two decades. These silos offer a buffer for staples that can be stored for months like wheat, rice and edible oils.

The UAE opened its Fujairah grain silos in 2016 on the Indian Ocean coast outside the Strait of Hormuz, with roughly 300,000 metric ton capacity. The location was chosen strategically to bypass Hormuz with Iran having already threatened to close the strait whenever tensions rose with the West.

“Fujairah’s grain silos act as a strategically important pressure valve providing routing flexibility and risk diversification when the Gulf’s maritime environment tightens,” said Sudhakar Tomar, president of India Middle East Agri Alliance Ecosystem.

The initiative originally envisioned emergency stocks to be shared by the entire Gulf region. But practical obstacles, including long distances and limited road or rail links between countries, meant it stayed domestic. Other Gulf states have since built their own storage, including Qatar’s Food Security Terminal at Hamad Port with 51 climate-controlled silos.

Regional cooperation among Gulf Cooperation Council members will be critical to averting food shortages, but the six-nation bloc has long struggled with coordination.

“It will require close cooperation amongst GCC states to manage complex logistics and ensure that all six states and Iraq are sated,” Quilliam said.

(Reporting by Sarah El Safty and Maha El Dahan; Additional Reporting Andrew Mills and May Angel, Editing by William Maclean)