Goldman Sachs has issued a stark warning about a potential food-supply shock in Southeast Asia, as costlier oil and fertilizer from the Middle East conflict collide with the threat of a strong El Niño event later in 2026. The investment bank estimates that the combined pressures could add an average of 1 percentage point to regional food inflation after six months, building to 2.1 points after a year before easing. Goldman stressed that these numbers reflect added pressure on the usual trend, not a full inflation forecast. The warning stems from the Middle East conflict, which lifted oil prices and disrupted fertilizer shipments, with energy sitting at the heart of both farming costs and food transport.
As reported by Goldman Sachs, Singapore and the Philippines are among the economies most exposed to global food price shocks, given their dependence on imported food supplies. Malaysia and Indonesia look better shielded thanks to palm oil, but strip out that sector and both turn into net food importers. Thailand imports more than 90% of its fertilizer, exposing the country to global price shocks through higher farm input costs. The strain extends beyond the region, with India also facing weaker monsoon rains that may impact its sugar exports. The bank notes that a potential strong El Niño event in late 2026 could create another food-supply shock just as oil and fertilizer pressures are passing through the food chain.
According to Goldman Sachs, the World Meteorological Organization estimates the odds of an El Niño event during June and August 2026 at 80%, with those odds climbing further out as the organization expects El Niño to remain dominant, with probability holding near or above 90% through at least November. The bank framed this as the next key factor, as a potential strong El Niño event in late 2026 could create another food-supply shock just as oil and fertilizer pressures are passing through the food chain. The oil shock has 'shown up in fuel-sensitive CPI items,' while climbing fertilizer prices stand to push up costs for farmers, leaving regional governments weighing a difficult choice between food and fuel.
As reported by Investing.com India, Thailand has used large rice inventories to stabilize prices during past drought episodes, while Indonesia has relied on rice reserves and imports to cushion domestic markets. The Philippines' rice market liberalization helped expand supply and ease price pressures during an earlier weather shock. These measures can work, but they do not eliminate the underlying cost problem. Subsidies shift the burden to the fiscal account, while price caps can suppress measured inflation while creating shortages or pushing consumers toward more expensive substitutes.
According to the analysis, this represents a lagged inflation story rather than an immediate oil-trading story, as the original crude shock may fade from view before the food component becomes more visible in CPI prints. That creates the risk of a policy and market response arriving late, after inflation expectations have already started to adjust. The key point is simple: the next phase of the oil shock may not show up in energy inflation, it may show up in the grocery basket. However, not everyone sees a crisis, with Global stocks and harvests of rice and other cereals could cushion the blow, according to UN Food and Agriculture Organisation (FAO) economist Shirley Mustafa.
