By: Professor Dato Dr Ahmad Ibrahim
For many years now, palm oil has led the world in the world trade of edible oils. That alone speaks for the enormous popularity of this versatile oil. Sure enough, any disruption in trade flows would negatively impact palm oil trade. The global palm oil industry has always lived at the intersection of agriculture, energy, and geopolitics—but rarely have all three forces tightened simultaneously the way they are now. The closure of the Strait of Hormuz amid an Iran–U.S. conflict would not just be another distant shock; it would reverberate directly through plantation rows in Malaysia and Indonesia.
At first glance, palm oil seems far removed from naval chokepoints and missile exchanges. Yet modern agriculture is deeply industrial. Nitrogen fertiliser—produced primarily from natural gas—is a critical input for sustaining yields. The Middle East is a major hub for both energy and fertiliser exports. Disruptions to shipping routes through the Strait of Hormuz would tighten global supply, push up fertiliser prices, and ultimately raise production costs for growers. For Malaysia, one of the world’s top palm oil producers, this is not a marginal issue—it strikes at the heart of yield economics.
Unlike annual crops, oil palm trees cannot simply be replanted or adjusted season by season. Fertiliser application decisions today affect yields months or even years down the line. Faced with higher input costs, some producers may cut back on fertiliser use to preserve margins. That, in turn, risks lower fresh fruit bunch yields and weaker oil extraction rates in future cycles. In other words, the shock is not just immediate—it is deferred, embedding volatility into the industry’s medium-term outlook.
On the demand side, the Middle East—particularly the Gulf states—has been a steady importer of palm oil for both food and industrial uses. Conflict-induced economic disruption in these countries could dampen consumption. Logistics constraints, higher insurance costs, and rerouted shipping lanes would further complicate trade flows. Even if demand remains structurally intact, the frictional cost of moving goods could erode competitiveness relative to alternative vegetable oils.
Yet the story does not end in contraction. Paradoxically, the same geopolitical shock that squeezes agriculture could invigorate palm oil’s role in energy markets. Rising crude oil prices—an almost inevitable consequence of instability around the Persian Gulf—improve the economics of biodiesel. Malaysia’s push toward higher biodiesel blending mandates suddenly looks less like policy ambition and more like strategic advantage. Palm-based biodiesel becomes more competitive, potentially absorbing excess supply and supporting prices.
This creates a split narrative for the industry. Upstream, plantation operators face cost inflation and agronomic risk. Downstream, refiners and biodiesel producers may benefit from stronger margins and policy tailwinds. The net effect will depend on how these opposing forces balance out—and that balance will not be uniform across firms. Integrated players with exposure to both plantations and downstream processing are likely to be more resilient than pure upstream producers.
There is also a broader structural implication. Episodes like this accelerate long-term shifts. High fertiliser prices could push the industry toward more efficient nutrient management, precision agriculture, or even biological alternatives. Similarly, sustained high energy prices could entrench palm oil’s position within the global biofuels mix, especially as countries seek energy security alongside decarbonisation.
Ultimately, the Middle East conflict underscores a truth the palm oil industry cannot escape: it is no longer just an agricultural business. It is a node in a tightly coupled global system where shipping lanes, energy markets, and geopolitical rivalries shape outcomes as much as rainfall and soil quality do. For Malaysia, the challenge is not merely to weather the storm, but to adapt—leveraging downstream strengths, improving upstream resilience, and navigating a world where the price of palm oil is increasingly written far beyond its shores.
Many may have missed the fact that the fracas in the Gulf can also be a blessing for palm oil. Like most industries, the palm oil business is also linear. The wastes generated are a burden. But such wasted biomass, if properly harnessed, can be big business. It is time for the industry to embrace circularity.
The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an Adjunct Professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya.
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