By Sasindi Fernando
On June 17, 2026, President Trump signed a memorandum of understanding (MOU) with Iran at the Palace of Versailles, calling for an end to hostilities. Iran eased its grip on the Strait of Hormuz, and the world exhaled – briefly. Within a month, ceasefire violations and renewed strikes from both sides rendered the Islamabad MOU void.
The MOU had set out terms for ending the war and reopening the Strait of Hormuz, through which some 20-30 percent of the world’s oil passed before the conflict. The crisis triggered one of the largest oil supply disruptions in history, with a recovery lag expected even after reopening. Across South and Southeast Asia, the war’s consequences continue to intensify: rising fuel prices, fertilizer shortages, and a collapse in tourism. Now, a ‘super’ El Nino is forecast to make landfall, threatening to turn a largely economic crisis into a humanitarian one.
The war’s aftermath and the arrival of a strong El Nino are not parallel crises. They will interact and amplify each other through shared vulnerabilities in energy, food, fertilizer, and remittances.
The Hormuz Shock
Amid Middle East airstrikes, the reorganization of commercial air traffic gave hubs such as Istanbul Airport a chance to strengthen its position as a global transit point linking Asia, Europe, and Africa. Other countries were less fortunate: rising airfares and cancellations destabilized tourism-dependent economies in the Maldives, Thailand, Sri Lanka, and the Philippines.
The Strait of Hormuz links the Persian Gulf’s major oil producers to Asian markets. Commercial traffic through it dropped by more than 90 percent after the outbreak of war, pushing oil prices from around US$67 per barrel before the conflict to an average of US$108 in April.
Although the MOU intended to formally end the conflict within 60 days and called for de-mining the waters, reopening the Strait did not guarantee economic recovery for developing countries across Asia. That window has since narrowed further: ceasefire violations on multiple fronts have rendered the MOU effectively void. Iran retains the capacity to close the Strait again, while Iran-backed Houthis in Yemen continue to leverage the Bab al-Mandeb Strait. Damaged port infrastructure in Saudi Arabia points to elevated shipping costs, and regular maritime traffic may be forced to reroute via the Cape of Good Hope until Hormuz is de-mined. The MOU offered the energy- and fertilizer-dependent economies of South and Southeast Asia only a narrow, uncertain window of relief – enough to restart some shipments, but not enough to restore supply chains.
Climatic Retribution
To call it retribution is not merely metaphoric. The climate system has no agenda, but it has an unforgiving memory. The Iran war exposes the world’s persistent overdependence on fossil fuels – the same dependence that has helped produce a Super El Nino, layered onto accelerating climate change.
The WMO predicts sea surface temperatures in the Equatorial Pacific will rise as early as May 2026, driving precipitation to extremes of flood and drought. South Asia faces the sharpest exposure. El Nino is projected to weaken the South Asian monsoon – the hydrological backbone of the region’s agriculture – by suppressing rainfall precisely when rice and other staple crops depend on it most.
The 1997-98 El Nino offers a sobering precedent. Its impact fell hardest on the poorest communities, where disasters rapidly unravel fragile livelihoods. Flooding in Somalia destroyed harvests and seed stocks, while livestock drowned or starved; Indonesia suffered drought, rice shortfalls, and large-scale forest fires. El Nino itself is not new, but its ferocity may be – and it is arriving into an already disrupted global supply system.
The world is not facing two separate crises, but two consequences of the same one: the fossil fuel economy that made Hormuz indispensable also made a two-degree warmer world inevitable.
The Fertilizer Trap
Rice is not merely a food in South and Southeast Asia – it is an economy. The region produces around 30 per cent of the world’s rice harvest across 48 million hectares. For countries like Sri Lanka, Cambodia, and Indonesia, rice is integral to national life, and depends entirely on fertilizer. Around 34 per cent of globally traded urea and 23 per cent of traded ammonia pass through the Strait of Hormuz; at the war’s peak, fertilizer-related cargo through the Strait dropped by 94 per cent.
The MOU changed geopolitical headlines but not supply chain calculations. The US insists the Strait is open even as Iran continues to strike ships, making cargo a primary casualty. Shipping contracts must be renegotiated, lanes re-certified, war-risk insurance recalculated, and port infrastructure reassessed. Prices are not expected to ease meaningfully until mid-2027, as exports recover and new supply becomes available – and risks will persist as long as Iranian and US narratives remain irreconcilable.
For fertilizer-dependent economies in South Asia, this deadlock shows up directly in grain prices. Nitrogen is the one element farmers cannot skip a season of, unlike potash or phosphate. For a farmer in Sri Lanka’s Maha season or Bangladesh’s Boro season, that lag is not an abstraction – it is a missed planting window that cannot be recovered. El Nino will further reduce moisture, working against harvests, while fertilizer and nitrogen shortages cut yield per hectare. The FAO Chief Economist has identified Bangladesh, India, and Sri Lanka – all approaching critical rice harvest seasons – among the countries currently most vulnerable.
Three Pillars
Agriculture is not the most visible casualty of this double crisis. Across South and Southeast Asia, national economies rely on three fragile systems: successful harvests, workers abroad, and tourists on the beach. When two are strained simultaneously, the third is heavily endangered.
Remittances represented 6.4 percent of Sri Lanka’s GDP in 2023, functioning as its most reliable foreign exchange buffer. Most come from migrant workers in the Middle East, many of whom found themselves in a conflict zone. India and Bangladesh face similar remittance exposure, relying on citizens working abroad alongside garment and agricultural exports to cover trade deficits.
Tourism-dependent economies are suffering in parallel. The Maldives derives an estimated 68 percent of its economic output from tourism, and its visitors rely on Middle Eastern transit hubs, affordable airfares, and safe passage.
Small states across Asia face a multifaceted challenge, with no strategic buffer – no sovereign wealth funds, no diversified energy base, no food reserves beyond a few weeks. The Iran war strikes three pillars simultaneously: agriculture, tourism, and remittances. Agricultural products grow scarcer and more expensive, migrant workers in Gulf states face disruption and displacement, and tourist arrivals – sensitive to regional instability and rising airfares – fall sharply. A Super El arriving at this point does not only threaten crops; it removes the last buffer between an economic crisis and a humanitarian one.
Ready or Not
Sri Lanka’s reserves, rebuilt to US$6.8 billion after the 2022 collapse, face rapid erosion if oil prices remain elevated. The 2022 crisis was domestic. This one is international – and Sri Lanka is not the only country at risk. Vulnerable regions worldwide now face simultaneous external shocks from both the Iran war and the Super El Nino. This puts severe strain on the World Bank, AIIB, and ADB, which risk overextension and institutional fatigue if forced to absorb concurrent demands from dozens of affected countries.
SAARC and ASEAN currently have no formal commodity shock protocols. Both must develop pre-arranged agricultural support facilities and fertilizer-sharing agreements before the next disruption, not during it. But SAARC remains paralyzed, its decision-making stalled by Indo-Pak rivalry while smaller member states absorb the fallout with no defensive mechanisms of their own.
For the international community, rebuilding supply chains dependent on Hormuz must not simply restore the pre-war status quo – that status quo produced this crisis. The responsibility now is to build toward energy sovereignty, climate-resilient agriculture, and supply chain diversification that no longer routes the food security of more than a billion people through a single strait.
Sasindi Fernando is an undergraduate of Politics and International Relations at the Royal Institute of Colombo. Her research interests focus on geopolitics, international relations, climate policy, modern history and comparative politics.
Factum is an Asia Pacific-focused think tank/consultancy on Diplomacy, Tech-Plomacy, Digital and Energy Futures accessible via www.factum.lk.
The views expressed here are the author’s own and do not necessarily reflect the organization’s.
