The hidden commodity shock

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The law of unintended consequences is among the oldest principles in economics. 

Policymakers focus on one problem, mobilize every instrument toward it, and then watch as the damage surfaces somewhere else entirely. Donald Rumsfeld captured the same idea with his taxonomy of “known unknowns” and “unknown unknowns.” Geopolitical crises have a habit of converting the second category into the most expensive one.

The current Middle East conflict is a case in point.

Most economic commentary has understandably concentrated on oil and liquefied natural gas, with the fear that disruptions in the Gulf could push energy prices sharply higher. That risk is real. But the more consequential shocks may be traveling through quieter parts of the commodity system, where supply chains are thinner, inventories are smaller, and price movements take months to surface in headline inflation data. By the time they do, the damage is already done.

Modern agriculture runs on nitrogen fertilizers — primarily ammonia and urea — both of which require natural gas as their principal feedstock. This is why the Gulf carries such outsized weight in global fertilizer supply. Qatar and Saudi Arabia, endowed with cheap natural gas, have become major exporters to Asia, Africa, and Latin........

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