Some crises don’t announce themselves. There is no D-day. There is no missile launch, no declaration from a podium, there is just a series of figures released in obscure government bulletins, figures most people have never seen, until the price of bread changes.
There is such a crisis right now. In July, England and Wales got 9–10% of their average rainfall. For England, it was the driest July since records began in 1836, before the internal combustion engine, the telephone, and the reunification of Germany. A fifth heatwave is expected. According to the EU’s Copernicus Climate Change Service, Western Europe had its warmest June-July ever recorded. On Monday, the Vistula, Poland’s longest river, hit 102 cm in Warsaw, a record low reached only a few days previously. The Rhine and the Danube have similarly low levels.
At the same time, in the Black Sea, the two countries together responsible for a significant portion of the world’s traded wheat, corn, barley, and sunflower oil are systematically crippling each other’s exports. Ukrainian attacks on Novorossiysk left three people dead, including a child, and forced some of the main grain terminals in Russia’s key Black Sea port to shut down. Russian attacks on shipping reduced Ukrainian grain exports by 76% in the first two weeks of August, compared with the same period in the previous year.
Underneath these issues, the Strait of Hormuz remains closed for business, on day 166 of my Global System Rupture. 8–11 ships a day are passing through a route that was carrying 130–140 per day until February 28. Brent is around $90.
These aren’t three separate issues. They are one issue, and the link between them is the cascade.
I. The food price index: the truth in the details
The FAO Food Price Index averaged 131.1 points in July, an increase of 0.6% over June, and 1% year-on-year. That is the headline figure, and it doesn’t seem alarming. Prices are still 18.2% lower than the peak reached in March 2022, in the aftermath of Russia’s full-scale invasion of Ukraine. But look more closely.
The Cereal Price Index increased by 3.4% month on month to 113.8 points, with wheat up 5.8%. The FAO said the increase was due to “concerns regarding the Black Sea export corridor, disruptions to export infrastructure, and heatwave effects on crops in some major producing regions.” Maize increased 3.6%, partly due to “hot and dry conditions in some areas of the US Corn Belt and higher energy prices as a result of ongoing geopolitical conflicts.”
The Vegetable Oil Price Index rose by 2% to 195.7 points, the highest level since June 2022. Palm oil rose due to “strong domestic demand from Indonesia for biodiesel production and higher international crude oil prices.” Soybean oil increased due to “feedstock demand and stronger global import demand.” Sugar rose 5.6% due to “weather impacts in Europe, potential production shortfalls in major Asian producing countries, and expectations of higher ethanol blending ratios for sugarcane in Brazil.” Meat fell 2.8%, its first decrease in the year. Dairy decreased 0.7%, continuing a decline that started in April.
Find the common theme. It isn’t the weather. Sometimes the weather is mentioned, sometimes not. What links cereal, maize, palm oil, soybean oil, and sugar?
Energy. Energy as an input, and energy as a competing demand for the same agricultural area, and the same amount of grain. This is the energy-fertilizer-food chain, working precisely as designed.
Above $89 for crude, you start to see the impact on nitrogen fertilizers, produced from natural gas. You start to see the impact on diesel used in farming, harvesting, and transporting. And you start to see the impact of energy as a competing demand: every ethanol blending requirement, and every biodiesel target, turns a food price floor into a fuel price ceiling.
The drop in meat and dairy are not contradictory. They are the next step. Higher feed prices squeeze margins, leading to slaughter. Slaughter releases meat into the market today, reducing it tomorrow. Falling meat prices during a feed cost shock are not good news. They are the sound of future supply being sold today.
II. The drought is not a weather event
Agriculture finance in Britain offers perhaps the best indication we have of what a modern food system looks like when it stops having a reserve.
The Agriculture and Horticulture Development Board expects below average yields for wheat, spring barley, and oats, all below the ten-year average, with wheat, the crop most responsible for the bulk of arable businesses, particularly low. The Energy and Climate Intelligence Unit calculates that the UK’s arable farmers will lose up to £390 million in revenues due to drought. Grass growth has decreased, so livestock farmers must buy extra feed, when they’ve planned to not buy any, in a season when feed is getting more expensive, regardless of their efforts.
The result is not cyclical, but permanent. Farmers who don’t make money stop farming or plant less. The capacity lost is lost even when the rain returns. Equipment is sold off, leases are dropped, workers find jobs elsewhere. In every drought year, the productive base shrinks, and only later is it noticed that there is no reserve left to fall back on.
Farm unions have asked for easier rules on putting in reservoirs, and tax breaks that make investing in climate adaptation actually make financial sense. These are good ideas, but not game-changing ones. The UK government’s own Climate Change Committee has said that the UK is not prepared enough for the effects of climate change on agriculture and that it needs to plan for two degrees of warming by 2050.
The most helpful analysis of the issue to date is the UK Research Team’s Roadmap for Resilience, which calls for three simultaneous changes: in what and how we grow food; in how we use land to both adapt and mitigate climate change while still producing food; and in making healthier diets cheap and easy to acquire. Their authors stress that the UK is land-rich and resource-rich enough to become more self-reliant and less dependent on global markets.
They give us a timeline of 25 years.
I would like to pause on that number. Twenty-five years is five parliaments, six American presidencies, and way longer than the median time any agriculture minister in a Western democracy actually stays in the job. The gap between the length of time required for solutions and the length of time politicians are paying attention to problems isn’t just an obstacle. It is why the problems continue.
It takes a week to institute hosepipe bans. It does not take a week to redesign our food system. And so, we are presented with the tools that governments have, not those they need.
III. The rivers are infrastructure, not scenery
The Vistula, the Rhine, and the Danube aren’t nature reserves, they are freight highways, and right now, they are failing.
Low water levels mean less cargo per barge. One barge that carries 60% of its volume costs the same to operate as one that carries 100%. So, the cost per ton of cargo is much higher. Cargo that doesn’t go down the river must go by rail or truck, and neither of these have a lot of spare capacity in Central Europe and cost many times more to operate.
Now, add the war. Since Russia started shelling the Black Sea and blocked most shipping lanes, Ukrainian exports have had to go through alternative routes: either by train overland through Poland and its EU partners, or through Danube river ports and into Romania’s sea ports. And now, both of these are hindered: the overland route by Polish agriculture policy and logistical limitations, the Danube route by the drought that has reduced the Vistula.
Here is where the usual models of risk fail. Risk models assume that when a bottleneck occurs, there is a spare, independent pathway that will kick in. But here, the spare pathways are dependent on the original one. A common climate factor has caused both harvest shortfalls and bottlenecks in transport, and then compounded it with an even more specific vulnerability: that the route intended as an emergency option in case of a blockade was not resilient to climate impacts.
When your redundancies are correlated, you do not have redundancies at all. You have a triple point of failure.
IV. The blockade nobody calls a blockade
Both sides are now targeting agricultural export infrastructure as a priority, and both sides are finding that it’s effective.
Russia’s Grain Exporters Union suggests wheat exports could fall short by 30 to 35 million tonnes. Ukraine’s Minister of Agrarian Policy has claimed more than 30 million tonnes of grain and oilseeds may go unsold. These figures are designed for negotiation leverage and to generate public sympathy; both exaggerate the severity of the situation. Under our baseline scenario, neither country would see anywhere near this level of lost exports. That said, the trajectory of reduced exports is beyond dispute. Ukraine has revised its export projections for 2026/27 down to closer to 38 to 40 million tonnes. Blocked ports have created acute domestic storage shortages in Ukraine, meaning grain that was harvested is essentially sitting in a country where there is nowhere to store it, and no way to get it out.
Russia, in response to the strikes against Novorossiysk, has been quick to claim the moral high ground. On Wednesday, Russian foreign ministry spokesperson Maria Zakharova said that the Kyiv regime’s attempt to cause turmoil in the world food market benefits certain Western states, and contributes to a worsening shortage of grain and fertiliser, global food inflation, and increased burdens placed on the countries of the Global South and East — ‘who are effectively hostages of these irresponsible policies’.
The argument is cynical, coming as it does from a state that has been striking port infrastructure in Odesa and attacking commercial shipping in the Black Sea for the past three years, and conveniently omits the fact that Russia is the world’s largest wheat exporter precisely because it has continued exporting during a war that it started. But it will also work.
It will work because the complaint it is voicing is genuine. States importing grain and fertiliser across North Africa, the Levant, the Sahel and South and Southeast Asia are footing the bill for a conflict that they have neither caused nor been able to prevent. They are footing the bill twice: once in higher prices for wheat resulting from disruption to Black Sea shipments, and again in higher prices for fertiliser because of the disruption to Hormuz and the Gulf ammonia and urea complex at Ras Laffan. When a message is opportunistic and true at the same time, the truth gets through. Western diplomats have repeatedly stumbled on this point, mistaking the character of the messenger for the validity of the message. It isn’t. The Global South is not confused about who invaded whom. They are simply working out who is being hurt.
V. Where does this sit in the GSR framework?
I’d like to be precise about the role this plays in the Global System Rupture framework.
The energy-fertilizer-food chain was the first cascade layer I defined, and it remains the quickest transmission. Hormuz disruption increases crude, and reduces gas-based fertilizer production in the Gulf. Fertilizer prices set planting intentions and expected yields one to two seasons ahead. Expected yields set futures prices, which set import bills, which set fiscal pressures on importing states, which sets political stability.
The financial-monetary cascade layer, which I introduced to the framework this summer, is the second transmission layer. Food and energy import bills are denominated in dollars. Emerging market currencies at historic lows versus the dollar turn a commodity price spike into a domestic price surge. A 20% increase in the wheat index is a minor problem if you have a stable currency, and a significant problem if you don’t.
What the July FAO data tells us is that both layers are active right now, and a third input, climate-induced yield decline in the temperate producing belt, has been added to the mix. That third input wasn’t an active variable in the original model. It was there as a structural trend. It’s now active.
The GSR’s main point about Hormuz applies equally well here: this is an allocation problem, not a market signal problem. Markets solve shortages with prices. Allocation problems solve shortages with rationing, export bans, and political decisions about who gets to eat. We’ve seen the first stage already, the FAO explicitly lists production risk in several large Asian producers as a cause for concern over prices, which is analyst code for governments starting to think about their own domestic supply first.
The sequence that follows from here is easy to predict, because it’s already happened in the past: price signals, then export controls, then bilateral state-to-state supply deals outside the market, then strategic reserve building, then the political fallout. The 2007-08 and 2010-11 as well as 2021-22 periods went through that sequence. The first one finished with the first systemic risk-driven global crisis, the second one finished with the Arab Spring, and the third one - with the third systemic risk-driven global crisis. Our base scenario since March 2 has been that the closure Hormuz and the war in Iran would result in the fourth systemic risk-driven global crisis.
VI. So what?
For the bifurcation of the global system. Food is now the vector for Cold War 2.0 reaching states that have gone to great lengths to avoid it. You can refuse to sanction Russia, refuse to join a Western technology alliance, refuse to take a stance on Taiwan, but you still can’t stop your wheat import bill from rising 30% and your fertilizer supply from being rationed. Neutrality doesn’t protect you from the global multiplicative cascade. It just means you have no say in how the cascade gets managed.
Moscow is ahead of the curve on this, and has started making the argument early, framing itself as the “defender of the Global South” against a food crisis it played a hand in creating (since 2021-2022). Beijing will amplify, without initiating, which is its preferred tactic. The DragonBear doesn’t need to win this argument on its merits. It just needs it to be on the table.
For the West. The reputation damage is enormous, and mostly self-inflicted. European agri-policy has spent the past two decades maximizing for efficiency and market integration, and has now realized that market integration requires slack, which it eliminated. The UK’s 25-year strategy document is the right answer to the wrong question, because the question is no longer how to make ourselves resilient by 2050. It’s how to survive the next three to five harvests.
For the fourth industrial revolution. I want to finish on this, because it’s the least discussed aspect of the problem, and arguably the most important.
Precision farming, machine learning yield prediction, satellite crop monitoring, and water resource modeling are all very real and getting better rapidly. They will make it easier to allocate scarcity. They won’t make more water appear, they won’t reopen Novorossiysk, and they won’t make the Vistula flow again. What they will do, and what they’re already doing, is shift information advantage. A commodities trading firm with satellite imagery, better weather models, and automated tracking of shipping schedules will know the magnitude of a harvest deficit weeks before the agriculture ministry of the nation that will need to import that deficit. That’s not a market inefficiency. It’s a structural redistribution of leverage from public institutions to private firms, and from information-rich states to information-poor states.
In the 20th century, food security was a matter of land, water, and grain reserves. In the 21st, it’s increasingly a matter of who knows about the deficit first, and who can respond to it. The countries that will suffer the most in the next growing season aren’t necessarily those with the worst crops. They’re the ones who hear about it last.
That’s the fourth industrial revolution sitting on your plate, and almost no one is preparing for it. And we might learn that water, not data, would become the Big Oil of the 21st Centrury.