The OPEC Fund for International Development OPEC FUND QUARTERLY 3 2026
FINANCIAL SUBORDINATION A conversation with a leading development economist
AN E-STAR IS BORN
OPEC Fund launches US$1.5 billion crisis response
RENEWAL AND CONTINUATION The new Vice President, Private Sector sets out his plans
HIGH EXPECTATIONS What clients are asking from multilateral development banks
How to stop nitrate supplies to the Global South from drying up Fertilizer Crunch The
Normalization will not be immediate since there is a huge backlog and also damage to production facilities.
Ruth Hill, IFPRI
The OPEC Fund Quarterly is published four times a year by the OPEC Fund for International Development. The OPEC Fund works in cooperation with developing country partners and the international development community to stimulate economic growth and social progress in low- and middle-income countries around the world. The organization was established by the member countries of OPEC in 1976 with a distinct purpose: to drive development, strengthen communities and empower people. Views and opinions expressed by guest contributors are solely the authors’ and don’t reflect the opinions or beliefs of the OPEC Fund. The OPEC Fund Quarterly is available free. If you wish to be included on the digital distribution list, please contact us via opecfund.org . Back issues of the magazine can be found on our website. The contents of this publication do not necessarily reflect the official views of the OPEC Fund or its Member Countries. Any maps are for illustration purposes only and are not to be taken as accurate representations of borders. Editorial material may be freely reproduced, providing the OPEC Fund Quarterly is credited.
PUBLISHERS The OPEC Fund for International Development Parkring 8, A-1010 Vienna, Austria Tel: (+43-1) 51564-0 Fax: (+43-1) 51392-38 www.opecfund.org
EXECUTIVE EDITOR Nadia Benamara EDITOR Axel Reiserer EDITORIAL TEAM Angus Downie, Howard Hudson, Mahdi Rahimi, Axel Reiserer, Nicholas K. Smith PHOTOGRAPHS OPEC Fund for International Development (unless otherwise credited) PRODUCTION Iris Vittini Encarnacion DESIGN Robin Turton, More Tea Design Ltd PRINTED IN AUSTRIA Print Alliance HAV Produktions Gmbh This publication is printed on paper produced from responsibly managed forests. Front cover: Shuttertock.AI/Robin Turton, More Tea Design
CONTENTS
5-29 OUR MAIN FEATURES Cover story The fertilizer crunch: What are the global risks to agriculture, markets and food systems
6-8 How fertilizer policies could exacerbate the Hormuz crisis 9-11 Ruth Hill, International Food
Policy Research Institute: “Global food production will remain vulnerable to shocks”
12-13 Why small island developing states face collateral damage 14-15 Putting wind in the sails of trade: The OPEC Fund’s E-STAR facility 16-17 Friendshoring: Keeping global trade alive in turbulent times 18-21 Annina Kaltenbrunner, Leeds University Business School: “Improving development outcomes requires addressing structural features” 22-24 Khalid Khadduri, OPEC Fund: “Agility is the ability to respond quickly to evolving needs” 25-27 The perfect storm is coming: How an obsession with digitization could leave us all vulnerable 28-29 Adebayo Babalola, OPEC Fund:
The fertilizer crunch p 6-11
“Partnerships, delivery and the future of development finance”
Photo: IFDC
IN OTHER SECTIONS
In the Field 30-31
Development News 38-39 OPEC Fund projects supporting sustainable development Events 40-45 US$1 billion water pledge, Climate Solutions Week,
Review 46-49
Helping Côte d’Ivoire become an upper-middle-income nation Spotlight 32-37 The OPEC Fund Development Forum marks 50 years of partnership and impact
How Africa Works : Our reviewer finds reasons for optimism The Back Page 50 The OPEC Fund Private Sector Department welcomes the Austrian business community
the energy trilemma... and more
EDITORIAL
WHEN THE GOING GETS TOUGH
Dear Reader, A s a resolution of the crisis in the Gulf region remains a distant prospect, the consequences for the global economy are likely to be felt for a long time. Developing countries are hit especially hard with highly volatile prices for crucial commodities, severe trade disruptions and direct impact on local supplies. In this issue of the OPEC Fund Quarterly, we take a detailed look at these questions, but also at short-term responses and long- term lessons to be learned. An expert analysis of the global fertilizer market by researchers from the International Food Policy Research Institute (IFPRI), an affiliate of the OPEC Fund partner organization CGIAR, reveals structural conditions that result in an imbalanced dependence on a handful of producers: Gulf countries account for roughly 40 percent of global urea and 23 percent of global diammonium phosphate exports, the two most widely traded fertilizer ingredients. (see p. 7) In an interview, the IFPRI’s Ruth Hill is crystal clear: “Global food production will remain vulnerable to shocks as long as it is dependent on a handful of inputs from a few countries.” Changing this global vulnerability will take time and cost money: “Truly alternative solutions are in the works but require further development, testing and scaling.” (see p. 10) In the meantime, however, quick responses are critical to prevent the crisis from spreading. The OPEC Fund is leading the way with its new E-STAR facility, a US$1.5 billion initiative to help developing countries weather the current disruptions. Designed as a countercyclical instrument, E-STAR is
providing support to stabilize budgets, trade finance to keep goods moving and investments to shore up supply chains. (see p.14) As OPEC Fund Principal Economist Angus Downie finds, small island developing states are among the countries most seriously exposed to external shocks (see p. 12). In line with his analysis, Danilo Spinola, Senior Lecturer in Economics at Birmingham City University, tells us: “The first priority should be countries which have structural external vulnerabilities.” (see p. 15) Taking the OPEC Fund’s engagement to the next level, the institution launched the Vulnerability to Viability (V2V) Compact at the 2026 OPEC Fund Development Forum (see p. 33) together with the Government of Barbados and the V20, a group of developing economies that are disproportionally affected by climate change. The pact will improve access to finance and attract new investment, especially in climate resilience. We looked at the underlying causes for the uneven progress in global development in a conversation with Annina Kaltenbrunner, Professor of Global Economics at Leeds University Business School (see p. 18). She is a leading Post-Keynesian scholar of financial subordination, a concept that emerged from observing structural asymmetries in the international economy that disadvantage and penalize developing countries. Her research and practical engagement signal a special role for institutions such as the OPEC Fund: “Multilateral development banks are extremely important because they can work
against these structures, thanks to their countercyclical mandate,” she said. The high expectations of development finance institutions among partner countries and businesses have been explored in detail by the ODI Global think tank in a comprehensive new study. Our Strategic Planning Director, Adebayo Babalola, examines the findings for the OPEC Fund. His conclusion: “The future landscape will not be defined by scale alone. It will also depend on the ability to connect partners, mobilize resources, prepare projects and deliver effectively.” (see p. 29) This approach is delivered through the OPEC Fund’s operations. Our new Vice President, Private Sector, Khalid Khadduri sets out his approach and priorities in an interview (see p. 22): “I feel a strong sense of stewardship to build on what has been established and deliver further.” Based on the strong foundations Vice President Khadduri has inherited, he will focus on agility, innovation and mobilization as the way forward for the Private Sector Department. What mobilization can deliver is best demonstrated on the ground. During a recent mission to Côte d’Ivoire, OPEC Fund Africa Director Mahmoud Khene and Country Manager Tarik Ladjouzi witnessed the rehabilitation of Cocody Bay, a once heavily polluted lagoon, which has improved health and living conditions for almost two million people. One resident reports: “It is a joy to see the progress.” We wish you an inspiring read and an enjoyable summer.
Axel Reiserer, Editor
4
COVER STORY
THE FERTILIZER CRUNCH As global supplies of fertilizers become a major concern, we are examining the impact of the current crisis at a moment when one-third of global seaborne fertilizer trade is at risk. An essay published by the International Food Policy Research Institute (IFPRI), a leading voice in agriculture and food systems, reveals a huge market concentration. In an interview we learn that the crisis may force farmers to make changes that will ultimately lead to lower production and higher prices.
5
THE FERTILIZER CRUNCH IFPRI BLOG HOW FERTILIZER POLICIES COULD EXACERBATE HORMUZ PRICE SHOCKS
By Shawn Arita, Ming Wang and Joseph Glauber 1
T he closure of the Strait of Hormuz amid the outbreak of the Iran war on February 28, 2026, put roughly one- third of global seaborne fertilizer trade at risk. Suddenly, production across the broader Persian Gulf region had no clear ocean exit. Focusing on two major types of fertilizer, urea and diammonium phosphate (DAP), the closure effectively blocked around 21 million metric tons (MMT) of annual urea export capacity across the Gulf region, including that of Iran, Qatar, and Saudi Arabia, along with another 4 MMT or so of DAP export capacity. The supply disruption drove global fertilizer prices up: through April, world urea prices approximately doubled and DAP prices rose about 35 percent. Yet how high prices go, and for how long, depends on more than the strait closure alone. The evolving export policies of the major non-Gulf fertilizer suppliers (mainly export restrictions) and the import policies of large fertilizer importing countries (mainly producer subsidies) are also affecting global supplies and prices. A handful of administrative decisions, often opaque and made with little or no advance notice or explanation, can move world prices by hundreds of US dollars per ton. As we saw in the grain and vegetable oil markets following Russia’s invasion of Ukraine in 2022 or with the rice market in 2023, countries often resort to export restrictions to
ensure sufficient supplies for domestic consumers, and further shorting global markets. Meanwhile, India and Pakistan, the world’s largest fertilizer importers, along with many other countries, run subsidy schemes that insulate their farmers from shifts in world prices, limiting changes in global demand that can lower prices. Amid the current spike, such decisions could drive fertilizer prices higher still, or help lower them. In other words, whether urea peaks at US$700 or US$900 per MT – and exactly how the shock will affect agricultural production and food security – may very well depend on the policy choices these countries make in the next several months. An earlier blog post by Arita and Glauber described the Hormuz disruption as a fertilizer supply shock that would likely have limited impacts on grain markets and food prices more broadly. This is a different kind of shock than the last one, triggered by the Russia-Ukraine war in 2022, which disrupted fertilizer supplies while food prices were considerably higher than today. This post further explores the nature of the current shock, employing an economic model to quantify and compare impacts of various supply- and demand-side policies across key fertilizer exporting countries beyond the Persian Gulf and major importing countries – finding that these can have significant impacts of fertilizer prices.
Key takeaways • Policy decisions by fertilizer exporters outside the Persian Gulf region could have significant impacts on global fertilizer markets already reeling from the closure of the Strait of Hormuz, a modeling analysis shows. • Export restrictions insulate domestic users from high global prices, but amplify global supply shocks by removing physical volume from the marketplace. • Subsidies shield domestic farmers from high global prices, sustaining consumption but contributing to price increases.
1 Shawn Arita is Associate Director of the Agricultural Risk Policy Center at North Dakota State University; Ming Wang is a Junior Research Economist with the NDSU Agricultural Risk Policy Center; Joseph Glauber is a Research Fellow Emeritus with IFPRI’s Director General’s Office. Opinions are the authors’.
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THE FERTILIZER CRUNCH
DAP and MAP exports October 2019 – April 2025
China
Metric tons (millions)
Russia
7
2
6
1.9
2.3
5
2.1
4.8
2.1
2.1
4
4
3
3.4
3.1
2.7
2.6
2
1
0
2019 – 2020
2020 – 2021
2021 – 2022 2022 – 2023 2023 – 2024 2024 – 2025
Time frame (October-April)
Source: TDM
Restrictions on fertilizer exports across different regions
Restrictions on traffic through the Strait of Hormuz have effectively choked off supplies from the Persian Gulf, the world’s largest fertilizer producing and (until recently) exporting region. Here again we focus on urea and DAP, two of the most widely traded fertilizer ingredients. The Gulf countries account for roughly 40 percent of global urea exports, with Iran the largest exporter (despite incomplete official reporting due to sanctions), followed by Qatar and Saudi Arabia, contributing approximately
begin in 2027. As discussed in Arita, Wang, and colleagues at North Dakota State University (NDSU), sulfur, a critical input to
phosphate production globally, is also heavily concentrated in Gulf production. The disruption therefore propagates through Moroccan and Chinese phosphate operations even though those producers are geographically distant from the strait. Other key fertilizer exporters, meanwhile, maintain export restrictions. As we saw in the grain and vegetable oil markets following Russia’s invasion of Ukraine in 2022 or with the rice market in 2023, countries often resort to such restrictions to ensure sufficient supplies for domestic consumers and further shorting global markets.
Photo: Perfectti – Adobe Stock
Gulf countries account for roughly 40 percent of global
21 MMT of annual export capacity collectively. The Gulf accounts for
urea exports and 23 percent of DAP exports.
23 percent of global DAP exports, with Saudi Arabia, led by Maaden, the largest producer, accounting for approximately 6 MMT of phosphate fertilizer production capacity. A planned expansion to 9 MMT under the Phosphate 3 project is not yet operational, with production expected to
7
THE FERTILIZER CRUNCH
China maintains tight control over fertilizer trade through export restrictions, customs inspections, and import quotas aimed at prioritizing domestic supply and stabilizing prices. China has operated an administrative export control and inspection regime (CIQ) since late 2021 to adjust fertilizer export volumes in response to domestic price conditions. Controls were binding through 2022-2024. Urea exports fell from about 5-6 MMT in 2021 to just 0.26 MMT in 2024, while DAP exports de- clined from a pre-restriction baseline of about 6.2 MMT per year to 4.6 MMT in 2024. In 2025, the regime shifted toward a more structured quota-based system with guidance pricing, allowing a partial recovery in exports. Urea exports rose to 5.8 MMT in 2025.
The global picture
China, Russia, Egypt and Indonesia together account for roughly 35 percent of global total exports and 47 percent of non-Gulf nitrogen and phosphate exports in 2020-2021, according to data from S&P Global Trade Atlas. All four countries have implemented some form of export quotas or restrictions since then, largely taken to maintain lower domestic prices.
Their combined posture determines how much residual supply reaches world markets. Figures 1 and 2 show exports across these four countries from 2000 to 2025, revealing significant tightening during 2022-2024 in both nitrogen (urea and ammonium nitrate) and phosphate (MAP – monoammonium phosphate – and DAP) fertilizer markets.
Russia has been moving in a more permissive direction even as other exporters have tightened. However, its quota system remains a structural le- ver Russia could pull tighter if circumstances changed. Russia introduced biannual urea and am- monium nitrate export quotas in December 2021 and has extended them repeatedly since then. The current quota for December 2025- May 2026 is set at about 18.7 MMT. In April 2026, the government announced a further increase to 20 MMT for June-November 2026, including roughly 8.7 MMT for ni- trogen fertilizers and over 7 MMT for compound fertilizers, along- side a separate 4.2 MMT quota for ammonium nitrate.
Russia
China
Egypt
Strait of Hormuz
Indonesia
Iran
Oman
UAE
Oman
Egypt maintains two main structural limits on fertilizer exports. It curtails fertilizer production seasonally, as natural gas is reallocated to the power sector during summer peak demand. A long-standing domestic supply obligation requires producers to allocate 55 percent of output to the local market, with the remaining 45 percent permitted for export. The September 2025 gas price reform adjusted this balance by raising the export share to 55 percent and reducing the domestic allocation to 45 percent, tightening local supply conditions. Periodic plant shutdowns due to interrupted Israeli liquefied natural gas (LNG) imports, most notably in May 2025 and June 2025, temporarily halted Egyptian urea output (LNG being a key input in urea production) before deliveries were resumed and operations restored.
Indonesia is positioned as a swing supplier during the Hormuz crisis, as state-owned Pupuk Indonesia is the largest urea producer in the Asia-Pacific region. Several countries have requested supply. While the country’s Presidential regulation Perpres 113/2025 prioritizes domestic urea supply ahead of export licensing, an export quota of approximately 1.5 MMT can be deployed flexibly depending on domestic conditions. Indonesia therefore represents swing capacity that can move in either direction depending on policy priorities.
Read the full essay (free) here:
https://www.ifpri.org/blog/how-fertilizer-policies- %20could%20exacerbate-hormuz-price-shocks/
8
THE FERTILIZER CRUNCH INTERVIEW
Global fertilizer supply is highly concentrated, with just a small group of countries controlling the vast majority of worldwide production, warns Ruth Hill, Director of Markets, Trade and Institutions at IFPRI By Axel Reiserer, OPEC Fund “Global food production will remain vulnerable to shocks as long as it is dependent on a handful of inputs from a few countries”
Ruth Hill
Ruth Hill is the Director of the Markets, Trade and Institutions Unit in the Food and Nutrition Policy Department at IFPRI. She was previously a Lead Economist at the World Bank, where she led work on the distributional impacts of cli- mate change, fiscal policy, markets and institutions. She also led the development of the World Bank’s Rural Income Diagnostics and con- ducted Poverty Assessments and Systematic Country Diagnostics in East Africa and South Asia. She has published widely and holds a doctorate in economics from the University of Oxford.
OPEC Fund Quarterly : Fertilizer prices have risen dramatically since the closure of the Strait of Hormuz at the end of February 2026 and the World Bank forecasts a rise of more than 30 percent this year alone. What will be the short- and long-term impacts for the most vulnerable countries? Ruth Hill: The most vulnerable countries are those that rely heavily on fertilizer imports for domestic food production, have not yet secured fertilizer supplies for the current or forthcoming seasons and cannot cushion the impact of high prices on farmers, i.e. through subsidies. The impact may be marginal in the current Northern Hemisphere season for countries that had already secured fertilizer supplies and in which farmers had already made planting decisions and input purchases. In forthcoming seasons, most immediately the main forthcoming Southern Hemisphere season, the impacts may be larger with farmers shifting away from crops with high fertilizer needs, reducing the area of crop planted in some cases and applying less fertilizer. Production may be lower as a result which would impact domestic food prices. OFQ : Is there a ceiling for these prices or can they rise indefinitely? RH: High prices are unlikely to rise indefinitely – high prices normally result in reduced demand through changing crop production decisions and reduced
application of fertilizer (reducing amounts applied or changing the mix of nutrients applied). Lower demand reduces the upward pressure on prices. But it is important to add that in large fertilizer using countries such as India, where fertilizer subsidies cushion the price impacts for their farmers, this transmission towards reduced demand will not occur. Higher prices also lead to increased exports from countries that had not previously been exporting and increased production, which can help drive down prices. However, such greenfield fertilizer projects take several years to come online so there is a limit in the amount that production can
“The most vulnerable countries are those that rely heavily on fertilizer imports for domestic food production [or] have not yet secured fertilizer supplies
increase in the short run. The duration of the high prices will depend in the short run on how long
shipments through the Strait of Hormuz are curtailed and in the medium-long term on new trade routes and increased fertilizer production elsewhere.
for the current or forthcoming seasons.” Ruth Hill
Illustration: Sugik – stock.adobe.com
9
THE FERTILIZER CRUNCH
“Higher fertilizer prices present a significant burden to farmers, especially smallholder farmers with limited resources.” Ruth Hill, Director of the Markets, Trade and Institutions Unit, Food and Nutrition Policy Department, IFPRI
OFQ : At what point do price increases become unsustainable for the most vulnerable countries raising fears of turbulence from famine to political turmoil? RH: Higher fertilizer prices present a significant burden to farmers, especially smallholder farmers with limited resources. If sustained over a longer period, they can lead to decreased agricultural production and contribute to a rise in food prices. We are not at the point of famine yet: there may be increased supply from other countries (see p.8), application rates may not reduce as much as expected (they did not reduce too much in the Ukraine crisis) and even if application rates fall, their impact on production may be marginal for major producers where use is very high and marginal reductions can be managed through greater efficiency in application or substituting with other nutrients at the margin. These are all things we need to monitor carefully. OFQ : Are there any viable short- term reactions, for instance finding alternative producers from different regions, and long-term responses? An obvious idea would be to boost capacity. But given the environmental impact, is this really a viable solution? RH: If countries such as China and Russia
relax some of their fertilizer export restrictions, prices would decrease (see p.8). Some fertilizer producers have the capacity to increase production in the short run and some can expand capacity relatively swiftly. This will help reduce the upward pressure on fertilizer prices, though it is clearly not sufficient to compensate for the present supply reductions caused by the war. New production sites require long lead times and substantial investment and are likely to remain concentrated in regions with access to low-cost natural gas or significant mineral deposits. OFQ : Are there feasible and practicable alternatives? RH: Truly alternative solutions such as crops bred to procure nitrogen from the air (in the way legumes can) or microbial fertilizers are in the works but require further development, testing and scaling. However, there is a lot that is ready to scale on improving fertilizer use efficiency by changing the mix of fertilizer and other inputs, or the way in which fertilizer is applied. The benefits of integrated organic and mineral fertilization approaches increase as fertilizer prices increase, so there is more to be gained from altering the mix of nutrients applied than before. This is not replacing fertilizers but applying them with increased amounts of other
inputs so that the same amount of crop output can be achieved for marginally lower rates of fertilizer application. Similarly, the benefits of agronomic practices such as microdosing that increase the gains from using fertilizer but can often be quite labor-intensive become more cost effective as fertilizer prices go up and provide an important means by which more can be gained from each unit of fertilizer applied. Additionally, there is an important role of new technology in developing alternatives to current fertilizer production. “Green ammonia” powered by electrolysis from renewable energy has been technically feasible for a long time, but recent investments are moving this towards becoming cost effective. Once it is cost effective, it will importantly sever the reliance on natural gas or coal for the production of ammonia. This is hugely important because ammonia has many other applications too in other chemicals, industry and energy. OFQ : Once a cessation of hostilities is firmly in place, how long will it take for a normalization of markets? RH: Fertilizer market normalization will not be immediate since there is a huge backlog of shipments, but also because the war has damaged some fertilizer production sites in the Gulf region.
10
THE FERTILIZER CRUNCH
Analysis by Shawn Arita presented in an AMIS/IFPRI policy seminar in April 1 showed that it would take until the end of 2026 for fertilizer prices to return to pre-war prices even if there was an immediate cessation of hostilities.
natural gas simultaneously serves as a feedstock for and powers most ammonia production around the world. Ammonia, the building block for most nitrogenous fertilizers, is one of the most widely produced industrial chemicals, and beyond fertilizers has many applications in other chemicals, industry and energy. OFQ : What lessons can we learn from the crisis? RH: Global food production will remain vulnerable to shocks as long as it is dependent on a handful of inputs that come from a handful of countries. Accelerated investments in technological development to reduce this vulnerability is essential, e.g. seed-based solutions
OFQ : Do you expect long-term consequences and damage?
RH: Some fertilizer production capacity has been damaged which means prices are projected to remain elevated even once trade normalizes. A key question is whether there will be an impact on global food production in some of the major growing seasons, but this is not yet clear and depends on factors such as how crop choice and input use decisions are impacted and whether production falls if fertilizer use falls. Also, higher fuel prices are resulting in higher consumer food prices in many countries with already immediate impacts on welfare. OFQ : Can the situation with fertilizers be compared to hydrocarbons or are the commodities completely different? RH: They definitely share some similarities. Both oil and fertilizer production is concentrated in a few regions, which make both sectors prone to supply shocks. Both also have a huge impact on food systems. The connections between natural gas and fertilizers are even stronger since
International Food Policy
to improve sustainable nitrogen provisioning and green ammonia technologies.
Research Institute
Today there exist strong possibilities for improving nutrient use efficiency that did not exist before. Meanwhile, the availability of location-specific AI- enabled advisories helps scale these approaches which are often site-specific. Nutrient use efficiency will be more attractive when nutrients reflect their true cost. Governments need advice on how to provide support to farmers that ensures their profitability without increasing subsidies that mask the price of inputs. The policy options are increasingly available.
The International Food Policy Research Institute (IFPRI) pro- vides research-based policy solutions to sustainably re- duce poverty and end hunger and malnutrition in develop- ing countries. Established in 1975, the institute supports evidence-based policies that contribute to poverty reduc- tion and help ensure that all people have access to safe, sufficient, nutritious and sus- tainably produced food. IFPRI is a Research Center of CGIAR, the world’s larg- est agricultural innovation network, and the only CGIAR center exclusively dedicat- ed to food policy research. It currently has more than 480 employees from around the world working in over 70 countries, with about half of the research staff based in developing countries. Research is aligned with CGIAR’s five impact areas: nutrition, health and food security; poverty reduction, livelihoods and jobs; environ- mental health and biodiversi- ty; gender equality, youth and social inclusion; and climate adaptation and mitigation.
Urea and ammonia nitrate exports October 2019 – April 2025
Metric tons (millions)
12
10
2.4
1.6 0.83 2.3
0.74 0.95
2.2
0.13
8
1.1 2.5
2
2.5
0.65
1.3 0.67
6
2
0.82 1.3
5.8
5.2
5.2
4
4.7
4.7
3.8
2
0
2019 – 2020 2020 – 2021
2021 – 2022 2022 – 2023 2023 – 2024 2024 – 2025
Time frame (October-April)
China
Indonesia
Egypt
Russia
Source: TDM
1 https://www.amis-outlook.org/list-details/events/tkvhxql4r4fph39m8akkl7tk
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THE FERTILIZER CRUNCH SIDS
FROM CLIMATE TO CONFLICT SMALL ISLAND DEVELOPING STATES AGAIN PAY THE PRICE Immediate help is necessary – led by grants, concessional financing and knowledge transfers By Angus Downie, OPEC Fund D espite a fragile truce between Iran and the US, the war has
Caribbean SIDS Almost all Caribbean SIDS are net importers of oil, gas, fertilizers and petrochemicals, with energy inputs critical for electricity generation, transport, tourism and food distribution. Higher oil prices directly widen merchandise trade deficits, while higher shipping and petrochemical costs raise import values across food and manufactured goods, weakening current accounts and overall balances of payments. Fiscal balances deteriorate as governments expand fuel subsidies, cap electricity tariffs or increase social transfers to cushion households, repeating patterns observed during earlier commodity spikes caused by the war in Ukraine. However, while these measures help stabilize economies in the short term, over the following years the costs can become severe: primary fiscal deficits (i.e. before interest payments are factored in) can widen, debt stocks can increase and debt servicing can become more difficult. Fiscal-debt pressures are already rising in some Caribbean states. Inflation effects are pronounced. The food and energy inflation pass‑through effect in SIDS is larger and more volatile than in other developing economies, while Caribbean consumer baskets (i.e. typical purchases) are particularly energy‑ and food‑intensive. As a result, several central banks face a delicate trade‑off between supporting post‑pandemic tourism recovery (by
keeping interest rates low to support credit for rebuilding and investing) and anchoring inflation expectations (by raising rates to prevent price spirals becoming entrenched). On balance, the impact on economic growth appears mixed but negative. Higher travel and operating costs squeeze tourism margins, just as household real incomes fall. While some energy‑exporting Caribbean economies (e.g. Trinidad & Tobago) gain from higher hydrocarbon prices, the region overall experiences weaker growth as financial resources are diverted to pay for higher fuel, food, transport and other goods – money that could rather have been invested in productive efforts. Exchange rates also tend to come under depreciation pressure in non‑pegged regimes (including Jamaica, Guyana and Suriname), particularly where foreign exchange reserve buffers are thin, reinforcing imported inflation. Pacific SIDS Pacific SIDS face even greater exposure due to extreme remoteness (particularly Fiji, Samoa and Tonga, but all other island nations are affected too), and a heavy reliance on imported diesel for power and transport (especially vast inter-island distances – a unique characteristic of Pacific SIDS). Higher oil and shipping costs significantly raise the landed cost of all imports, amplifying the terms‑of‑trade shock. The current account impact is severe:
caused global energy, fertilizer and petrochemical price shocks – driven by shipping disruptions through the Strait of Hormuz, along with damage to regional energy infrastructure. The IMF and World Bank stress that commodity-importing developing economies face the largest macroeconomic spillovers. These come in the form of higher oil, gas, fertilizer and food prices, tighter financial conditions and currency pressures. Second‑round fuel and food price effects have become the main drivers of inflation.
When we look specifically at small island developing states
(SIDS), we see how these price shocks feed into domestic inflation – reflecting their high import dependence, small market size and limited scope for substitution. Sustained disruption in Hormuz could keep oil prices structurally elevated throughout 2026, even with a partial normalization of energy production and exports. That in turn raises the risks for SIDS that are still dealing with the after-effects of natural disasters, the earlier price shock from the war in Ukraine, along with the lingering disruptions of the COVID-19 pandemic. We look at how the three main regions have fared, along with the outlook in the face of lingering uncertainty.
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THE FERTILIZER CRUNCH
“The IMF and World Bank stress that commodity- importing developing economies
face the largest macroeconomic spillovers.”
Indian Ocean SIDS Indian Ocean SIDS (e.g. Comoros, Maldives, Mauritius and Seychelles) combine high energy import dependence with open capital accounts and tourism‑led growth models. As with other SIDS regions, higher oil prices raise electricity, water desalination and air transport costs, directly affecting tourism competitiveness and service exports. For these economies, the balance‑of‑payments channel is two‑sided: import bills rise sharply, while tourism receipts may soften if global growth slows or travel costs rise. Prolonged high energy prices would suppress global demand, indirectly reducing arrivals and foreign exchange inflows to Indian Ocean tourism hubs such as the Maldives, Mauritius and Seychelles. Meanwhile, inflation is accelerating due to rising fuel and food prices, with limited scope for domestic price smoothing. Central banks face credibility
fuel imports often account for 10–20 percent of total imports, so price increases can rapidly widen external deficits. Grant inflows and remittances provide some offset, but these are insufficient under sustained energy price stress. Pacific SIDS experience particularly strong second‑round inflation because transport costs feed into food prices, construction materials and public services. At the same time, fiscal pressures intensify as governments need to absorb fuel cost price rises for public utilities and inter‑island transport. Meanwhile, limited administrative capacity makes targeted support difficult, raising the risk of inefficient, broad‑based subsidies that strain budgets even more. Overall, economic growth slows as public investment is crowded out and private activity, which is already shallow and thinly spread, weakens. Exchange rate dynamics differ by regime, but in more flexible systems higher import bills and weaker global sentiment contribute to depreciation, compounding inflationary pressures. Longer‑term, the shock strengthens the case for accelerating investment into renewable energy to reduce structural exposure. The Pacific SIDS that have made the greatest investments in solar, hydropower and biomass to transition away from imported diesel include Tokelau (nearly 100 percent solar), Apolima in Samoa (100 percent solar), and Fiji (50-60 percent via large-scale hydropower).
challenges where pass‑through is rapid and expectations are weakly anchored. Fiscal balances worsen as energy‑related subsidies expand, undermining medium‑term fiscal consolidation plans as set out in IMF lending programs. Exchange rate regimes across the Indian Ocean SIDS are mostly pegged (either to the US dollar or a basket including the US dollar, euro and British pound) or have central banks that actively intervene in local foreign exchange markets to manage stability. While this helps smooth initial external shocks, it requires large foreign exchange reserve buffers (e.g. six months of import cover), which many countries do not have. This puts downward pressure on current accounts, as seen in SIDS that operate under floating exchange rate regimes. Without large foreign exchange reserves, the same problems arise. Growth is expected to slow, particularly where tourism‑linked investment is postponed.
Outlook: Yet more struggle The impacts from the war in Iran are clear: high oil, gas and fertilizer prices act as a regressive external shock for most SIDS, weakening current accounts, undermining fiscal balances, depleting foreign exchange reserves, raising inflation and slowing growth. The energy, food and fertilizer shock magnifies pre‑existing structural vulnerabilities that are already known. Policy advice includes targeted social protection, avoidance of broad-based fuel subsidies and accelerated energy diversification to reduce long‑term exposure to geopolitical commodity shocks. Immediate help is necessary – led by grants, concessional financing and further knowledge transfers to boost capacity.
13
TRADE & DEVELOPMENT SUSTAINABLE GROWTH TRADE & DEVELOPMENT E-STAR
PUTTING WIND IN THE SAILS OF TRADE
A new US$1.5 billion OPEC Fund facility is helping developing countries weather a range of commodity, energy and trade disruptions. Meanwhile, experts see a reconfiguration of trade with implications for global value chains By Howard Hudson, OPEC Fund
L aunched by the OPEC Fund in April 2026, the Economic Stability, Trade and Resilience Initiative (E-STAR) is providing rapid countercyclical support to stabilize budgets; trade finance to keep goods moving; and targeted investments to shore up supply chains and infrastructure. To understand the context and guide development effectiveness, we sought expert views from scholars working with the United Nations and various development finance institutions. First, Danilo Spinola, a Brazilian development economist, gives tailored recommendations on how to apply short-term support while galvanizing long-term growth and resilience. Second, in a standalone article originally published in The Conversation , a non-profit media network, three Italian researchers led by Prof. Carlo Pietrobelli take a deep dive through global value chains, citing “friendshoring” as a logical antidote to tariffs and protectionism.
What the two analyses have in common is a focus on long-term partnerships and local production capabilities – to keep emerging economies not only afloat, but able to catch the trade winds.
“[We need] to keep emerging economies not only afloat, but able to catch the trade winds.”
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TRADE & DEVELOPMENT
Interview with Danilo Spinola, Senior Lecturer in Economics, Birmingham City University, on the OPEC Fund’s emergency facility E-STAR and finding the right balance between short-term fixes and fostering long-term growth “Trade finance can play a critical role in enabling the green transition”
OPEC Fund Quarterly : From a research perspective, where do you think the OPEC Fund should target this support program? Danilo Spinola: I would start by highlighting how short-term liquidity support can protect long-term productive capacity. In many emerging economies, the core constraint is access to foreign exchange for essential imports, especially during shocks. The first priority should be countries such as small island developing states, low- and middle-income countries and landlocked economies, which have structural external vulnerabilities and rely heavily on imported food, energy, fertilizers and medicines. Second, it is best to focus on intermediate and productive inputs rather than finished goods for consumption. Supporting imports of machinery, spare parts, fuel and agricultural inputs helps keep domestic production systems running. If those inputs collapse, the economy risks longer-term damage that is much harder to reverse. Third, I would target small and medium-sized enterprises and local financial institutions. SMEs account for a very large share of employment, often around 90 percent in parts of Latin America, yet they are the least resilient to shocks and the most exposed to trade disruptions. Supporting them is not just about stabilization; it is about preserving the backbone of the economy.
OFQ : How should we tailor approaches and calibrate timelines? DS: I would be cautious about short- term fixes. There is always a risk that emergency trade finance creates medium-term distortions or reinforces import dependence. The design should explicitly link short-term support with longer-term resilience, for example by strengthening local supply chains, logistics, ports and storage systems. The program could also align with broader structural transitions, especially the green transition. Many countries need to import new technologies to shift toward more sustainable production, but lack the foreign currency and financial space to do so. Trade finance can play a critical role in enabling the transition if it is directed toward technologies and sectors that support decarbonization and resilience. Finally, I would strongly recommend grounding the program in country- specific analysis rather than a one- size-fits-all model. The evidence is clear from our research in the Global Network for the Economics of Learning, Innovation and Competence Building Systems (GLOBELICS): Policies are most effective when they are tailored to each country’s economic structure, institutional capacity and social context. Supporting that kind of tailored, evidence-based approach will make the US$1.5 billion go much further in terms of impact.
Danilo Spinola
Danilo Spinola is Senior Lecturer in Economics at Birmingham City University, UK, Senior Consultant at the Agence Française de Dévelop- pement and long-term affiliate of the Inter-American Development Bank. With a focus on sustain- able development, innovation, structural change and complexity economics, he is a board mem- ber of the Global Network for the Economics of Learning, Innovation and Competence Building Systems (GLOBELICS). He holds a PhD from UNU-MERIT, Maastricht University, the Netherlands.
Photo: SvedOliver/Shutterstock
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The current reconfiguration of global trade is crucial for developing economies. The risks are high, but as successful examples demonstrate: There are also opportunities By Carlo Pietrobelli, Michele Delera and Nicolò Geri 1 Amid rising tensions, “friendshoring” might keep global trade alive
T he world economy is at a crossroads. International trade is slowing, economic uncertainty is rising and trade between the US and China – the world’s two largest economies – risks pulling apart. And it is not just trade: the two countries also invest less in each other than they did just a few years ago. What is driving this reconfiguration of trade? For some large economies, including the US under President Donald Trump, a desire for greater self-reliance is central. Between 2017 and 2023, American imports fell most sharply in the very products where the US had been most reliant on China – including industrial machinery, computers and computer parts, and other electronic equipment such as monitors. This has important implications for global value chains. GVCs are the backbone of international trade – production activities from research and product design to assembly are distributed across various locations, with “value” being added at each stage. This redistribution can take place across several countries, coordinated by multinational firms. The reconfiguration of GVCs is accelerating, and so industrialized economies now have two main options. They can reshore production, bringing manufacturing back to their own countries (a stated priority for the current US administration). Or they can “friendshore”, shifting imports and investments towards economies that are either geographically closer, or with which they have long- standing relationships.
For developing countries, the balance between these two strategies is crucial. If advanced economies reshore a substantial share of production, developing countries could suffer as investment and jobs are lost. And automation and digitization now make it more convenient for advanced countries to produce goods at home, making this a greater risk to these poorer countries than it was a decade ago. For consumers though, this reshoring could mean higher prices for everyday goods, at least in the short term, because of the higher costs of manufacturing in more advanced economies. It should be said, however, that the empirical evidence for this remains limited. Risks and opportunities But friendshoring offers an alternative. Early signals from countries like Mexico and Viet Nam – which have recently seen an increase in investment and factory expansions from multinational firms – suggest that friendshoring can create opportunities. When paired with supportive government policies such as investment incentives or help to upgrade technology, these shifts can ensure that more production takes place domestically. This can lead to greater technology spillovers and learning. To understand the risks and opportunities, we examined the specific products where US-China decoupling is most pronounced (that is, where trade is reducing). From this analysis, two broad clusters emerged, each with different
implications for developing economies. The first group mainly includes relatively complex goods – things like consumer electronics, vehicle components, chemicals and machinery. Here, the US is both diversifying its imports quickly and is already producing these goods competitively. The products and sectors at the heart of the reconfiguration of GVCs These products can easily be reshored, particularly if automation lowers costs. Semiconductors, for instance, are already the focus of major US reshoring efforts. Yet the risk to current producers of US reshoring appears limited for now. While the US has reduced imports from China of these products, other developing regions have not experienced a similar trend. In the second group, the US is diversifying but is not competitive enough to bring production home. This group accounted for just over 6 percent of finished products that the US imported in 2023 – roughly US$181 billion. This is a small share overall, but economically significant. Within this group, two types of opportunity emerge. Technologically complex goods, such as electrical equipment, computers and car parts, offer the greatest potential for middle-income economies with strong manufacturing experience to win contracts and investments. Lower- tech goods like textiles and furniture are better suited to lower-income countries. In both cases, governments need to negotiate carefully to ensure
1 Carlo Pietrobelli is Professor of Economics, UNESCO Chair, United Nations University; Michele Delera is Affiliated Researcher, UNU-MERIT, United Nations University; and Nicolò Geri is PhD Candidate, Economics, Sapienza University of Rome
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Photo: alekseyliss – Adobe Stock
Carlo Pietrobelli
Nicolò Geri
Photo: Courtesy of Carlo Pietrobelli
Photo: Courtesy of Nicolò Geri
Michele Delera
For consumers, there are benefits too. The label on our next laptop, charger or T-shirt might change, but prices will remain broadly stable – at least before tariffs kick in. In this sense, globalization will not disappear. But it will take on a different geographical shape. developing economies that invest in production capabilities... will be best placed to harness opportunities.” “As economic uncertainty and technology reshape global value chains,
Photo: Courtesy of Michele Delera
investments add value locally, support skills development and avoid social or environmental harm. For consumers worldwide, friendshoring offers a more benign outlook than reshoring or tariffs. Goods may simply be made in different countries, with prices remaining broadly stable. Who could gain? So far, East and Southeast Asia – including Viet Nam, Thailand, Malaysia and Indonesia – have captured the largest share of these friendshoring opportunities, particularly in high-tech sectors like computers. Their exports to China have also risen, reinforcing their central role in Asian manufacturing networks. But whether this momentum continues will depend on tariffs, production costs and the pace of automation. Other beneficiaries could include Latin America and Caribbean nations, led by
Mexico. Here, the automotive sector dominates export growth. South Asia could also benefit, with India expanding in both high- and low-tech products, as well as Bangladesh at the lower-tech end. In contrast, Africa and Western Asia remain largely absent from the emerging friendshoring landscape. The risk to these countries of large- scale reshoring remains limited for now but cannot be ignored amid shifting global trade and investment patterns. But friendshoring could offset or even exceed potential losses, offering new pathways for industrialization. As economic uncertainty and technology reshape global value chains, developing economies that invest in production capabilities – and implement smart industrial policies – will be best placed to harness opportunities. In some cases, friendshoring may even allow them to leapfrog into more sophisticated
• This article is republished from The Conversation under a Creative Commons license:
https://theconversation.com/amid- rising-tensions-friendshoring-might- keep-global-trade-alive-276343
activities faster than traditional development paths would allow.
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