The Hormuz Pivot: How War in Iran Rewired the Global Sugar Market

The Conflict’s Oil Math Just Hit Cane-to-Ethanol Economics. The Sugar Market Isn’t Fully Pricing It Yet. 

Key Points:

• The Strait of Hormuz closure has introduced three simultaneous pressures on the global sugar market: Brazilian ethanol diversion, spiking nitrogen costs, and repriced freight routes for refined sugar flows.
• Brazil’s mills are already expected to divert more cane to ethanol with Brent above $100. Each percentage point of mix shift removes 1.5 to 2 million metric tons of raw sugar from the global pipeline.
• Urea FOB US Gulf hit $599.50/MT on March 13, up 35% in one month. Higher nitrogen costs raise the 2026/27 production cost floor in ways the futures curve hasn’t priced yet.
• The 2025/26 balance sheet still shows a surplus. The 2026/27 picture depends almost entirely on where oil settles. If Brent holds above $95 through April, the deficit case gets serious.

The closure of the Strait of Hormuz turned a comfortable sugar surplus into a forward deficit story, one embedded in energy, fertilizer, and freight. Three channels. None of them unwind on a one-day oil pullback.

Brent traded at roughly $100 on March 13 and briefly tested $102 earlier in the week, up about 45% in the past month.[1] Goldman Sachs hiked its average Brent forecast above $100 for March.[2] Iran’s supreme leader has stated Hormuz must remain closed to pressure the United States, even as Iran’s UN envoy said on March 12 that Iran is “not going to close” the strait.[3] The contradiction matters less than the outcome: commercial traffic through the strait remains functionally disrupted.

For producers, refiners, and anyone managing sugar exposure, the question has shifted. The 2025/26 balance sheet still shows a surplus. The 2026/27 balance sheet may be starting to show a deficit, though analysts are deeply divided on that point. Three simultaneous channels are driving the shift, and all of them trace back to Hormuz.

Hormuz as the pivot point

When Brent crossed $100 on March 9 and briefly printed near $120, most desks treated it as an oil story. For sugar, it was an inflection point. The move repriced the cane-to-ethanol decision in Brazil, raised the forward cost curve for nitrogen, and forced refined sugar flows onto longer, more expensive routes.

Coming into this event, the balance sheet gave bears cover, and plenty of it. The International Sugar Organization had 2025/26 at a 1.22 million metric ton surplus.[4] Czarnikow called the 2025/26 surplus at 8.3 MMT and projected another 3.4 MMT surplus for 2026/27.[5] Green Pool Commodity Specialists had 2025/26 at 2.74 MMT surplus and 2026/27 at a modest 156,000 MT surplus.[6] Sugar prices hit 5.25-year lows on February 12.[7] The market took that wall of surplus data at face value and built a record net short in Sugar #11.

The bearish case has muscle behind it. India’s 2025/26 sugar output from October through February reached 24.75 MMT, up 12% year over year, according to ISMA.[8] ISMA projects full-season production at 29.3 MMT. More importantly, India’s government approved a total of 2 MMT in export quotas for the 2025/26 season, reintroducing Indian supply to the world market for the first time in three years.[9] ISMA also cut its estimate for sugar diverted to ethanol production from 5 MMT to 3.4 MMT, freeing up additional tonnage for export.[10]

The USDA reinforces the supply story. Its December forecast projected global 2025/26 sugar production climbing 4.6% year over year to a record 189.3 MMT, with India up 25% and Brazil up 2.3% to a record 44.7 MMT.[11]

A Reuters poll from March 6, however, projects a 1.5 MMT deficit for 2026/27.[12] That split, ranging from Czarnikow’s 3.4 MMT surplus to a 1.5 MMT deficit, tells you the market is pricing two different worlds depending on what you assume about oil, ethanol economics, and Brazilian mill decisions.

The Iran conflict changed the math across three simultaneous channels.

Channel 1: Ethanol repricing in Brazil

Brazil’s center-south region is the world’s swing producer. Mills decide each crush season how much cane goes to sugar and how much goes to ethanol. That decision hinges on relative margins, and right now the margins favor ethanol decisively.

With Brent above $100, anhydrous ethanol netbacks in reais per ton are well above sugar equivalents. Bloomberg reported on February 4 that Copersucar, the largest trader, expected mills to divert more cane to ethanol at the start of the 2026/27 crush.[13] That was before oil spiked. The incentive to divert has only strengthened since.

Reuters confirmed on March 9 that the energy price surge is expected to drive Brazilian mills toward ethanol and cut sugar output.[14] The center-south’s sugar allocation, already expected to dip from last season’s 49.7% of cane, could drop below 47%. Each percentage point of sugar-mix shift removes roughly 1.5 to 2 million tons of raw sugar from the global pipeline.

That’s enough to flip a surplus into a deficit on its own.

One bearish wrinkle: Unica reported on February 18 that center-south sugar production in the second half of January fell 36% year over year to just 5,000 MT, though cumulative 2025/26 output through January was still up 0.9% at 40.24 MMT.[15] The question is whether that’s an inter-harvest lull or an early signal of allocation shifting.

If Brent stays above $95 through April, the 2026/27 crush starting in April will lock in lower sugar allocation from day one.

Channel 2: Nitrogen and the forward cost curve

About 60% of the world’s exportable urea capacity sits in countries whose natural gas supply or shipping routes pass through or near the Strait of Hormuz. Iran, Qatar, Saudi Arabia, Oman, and the UAE collectively anchor the global nitrogen supply chain.

Urea spot prices have responded sharply. Granular urea FOB US Gulf was at $599.50 per metric ton on March 13, up 35% in one month and 57% year over year.[16] The basket price stood at $552.48 as of March 5.[17] Retail urea hit $625 per ton in the first week of March.[18]

Higher nitrogen costs feed directly into cane and beet production costs for the 2026/27 crop year. They don’t appear in the current season’s balance sheet. They raise the breakeven price at which the next crop must sell to justify planting and input decisions. That’s a forward-looking cost floor. The futures curve has barely started to price it.

Channel 3: Freight and refined sugar flows

The Middle East is a major destination for refined sugar. Historically, sugar moves from Brazil, India, and Thailand to refineries and consumers across the Gulf states. Those flows now face a choice: pay war-risk surcharges of $3,000 to $4,000 per container, or reroute around the Cape of Good Hope, adding 10 to 20 days of transit time plus fuel and insurance costs.[19]

Maersk has halted all vessel crossings through the Strait and rerouted key services around Africa. MSC has suspended certain routes. The practical effect: refined sugar bound for the Middle East and South Asia is more expensive to deliver and slower to arrive.

This won’t eliminate trade. It will reprice it. Buyers in the Gulf pay more or wait longer. Sellers from India and Thailand lose a fast route to a premium market. The result is a tighter effective supply picture even if the physical surplus still exists on paper.

A separate development reinforces this dynamic. The European Commission is set to suspend some duty-free sugar imports for at least a year under the inward processing regime, which had allowed duty-free sugar into the EU for re-export.[20] That further constrains refined sugar flows at a time when trade routes are already under stress.

What the balance sheet looks like now

On paper, 2025/26 remains a surplus year. The ISO’s 1.22 million metric ton figure hasn’t been revised.[21] The USDA forecasts 2025/26 global ending stocks down 2.9% year over year.[22] India is flooding the market with export tonnage, and Czarnikow sees surplus conditions persisting into 2026/27.[23]

The counterargument: a Reuters poll from March 6 projects a 1.5 MMT deficit for 2026/27.[24] That poll was conducted before Brent crossed $100. If ethanol diversion in Brazil accelerates from here, the deficit widens. If oil retreats below $85, the surplus forecasts hold.

The three Hormuz channels all push in the same direction for 2026/27: less sugar from Brazil (ethanol diversion), higher production costs globally (nitrogen), and more expensive logistics for what does get produced (freight). Whether those forces are strong enough to overwhelm the wall of Indian and Thai supply depends almost entirely on where oil settles.

Sugar #11 (May contract, SBK26) has responded. Prices spiked to 14.64 cents per pound on March 9, a one-month high.[25] By March 13 prices had eased to around 14.39 to 14.42 cents. That’s still 25% lower year over year. The pullback doesn’t invalidate the thesis, but the bearish base case deserves respect: analysts who see surplus conditions extending into 2026/27 are working with real production data, not speculation.

Positioning and risk

For producers and hedgers, the current price range presents a specific risk: adding unprotected forward sales too aggressively, especially in regions exposed to fertilizer and freight shocks.

Production costs for 2026/27 is moving higher in real time. Selling forward at today’s levels without upside participation could mean locking in negative margins if input costs don’t retreat.

For industrial buyers and refiners, using this range to extend coverage into 2026/27, or to layer into structures that secure volume while capping participation in a sharp rally, is a rational trade-off. The Reuters poll consensus expects prices to end the year roughly 10% above current levels.[26]

The Hormuz closure has introduced genuine uncertainty into what looked like a settled surplus cycle. The three channels all point toward tighter availability and higher breakeven prices. The bearish case, anchored by record Indian output and broad surplus forecasts, argues that the physical market can absorb the disruption. The resolution depends on duration: if the strait remains functionally closed and Brent holds above $95, the ethanol math alone can tighten the 2026/27 balance sheet enough to matter.

What to watch

The single most important variable is time. Managing risk over the next six months of visible surplus is a different problem than positioning for the 2026/27 window where fertilizer and ethanol effects fully arrive.

Three triggers to track.

First, Brent crude: if it holds above $95 through April, the 2026/27 Brazilian crush will lock in lower sugar allocation from the start.

Second, urea FOB US Gulf: the $600 level is already straining spring planting budgets, and any further move toward $700 would raise the 2026/27 sugar cost floor meaningfully.[27]

Third, Sugar #11 itself: a sustained close above 15 cents on the May contract would signal the market is beginning to price the forward deficit rather than the current surplus.

The surplus is real today. The deficit is potential tomorrow. The resolution hinges on oil, and right now oil is saying something the sugar market hasn’t fully heard.

[1]Trading Economics, Brent Crude Oil data. https://tradingeconomics.com/commodity/brent-crude-oil

[2]CNBC, “Stock market today: Live updates,” March 11, 2026. https://www.cnbc.com/2026/03/11/stock-market-today-live-updates.html

[3]Reuters, “Iran not going to close Strait of Hormuz, Iran UN envoy says,” March 12, 2026. https://www.reuters.com/world/middle-east/iran-not-going-close-strait-hormuz-iran-un-envoy-says-2026-03-12/

[4]International Sugar Organization via Yahoo Finance, “Outlook: Global Sugar Surplus Weighs”. https://finance.yahoo.com/news/outlook-global-sugar-surplus-weighs-193021257.html

[5]Czarnikow via Czapp, “Sugar Production Peaks in 2025-26 but Set to Ease in 2026-27”. https://www.czapp.com/analyst-insights/sugar-production-peaks-in-2025-26-but-set-to-ease-in-2026-27/

[6]Green Pool Commodity Specialists via Yahoo Finance, “Outlook: Global Sugar Surplus Weighs”. https://finance.yahoo.com/news/outlook-global-sugar-surplus-weighs-193021257.html

[7]Trading Economics, Sugar data. https://tradingeconomics.com/commodity/sugar

[8]ISMA via Trading Economics, India sugar production data, March 6, 2026. https://tradingeconomics.com/commodity/sugar/news/531067

[9]S&P Global, “India approves additional 500,000 MT sugar export quota,” February 16, 2026. https://www.spglobal.com/energy/en/news-research/latest-news/agriculture/021626-india-approves-additional-500000-mt-sugar-export-quota

[10]ISMA via Trading Economics, India sugar production data, March 6, 2026. https://tradingeconomics.com/commodity/sugar/news/531067

[11]USDA Foreign Agricultural Service, December 2025 sugar production estimates. https://apps.fas.usda.gov/psdonline/circulars/sugar.pdf

[12]Reuters poll on sugar prices, March 6, 2026. https://tradingeconomics.com/commodity/sugar/news/532689

[13]Bloomberg, “Sugar Giant Sees Brazilian Mills Diverting More Cane to Ethanol,” February 4, 2026. https://www.bloomberg.com/news/articles/2026-02-04/sugar-giant-sees-brazilian-mills-diverting-more-cane-to-ethanol

[14]Reuters, “Energy price surge to drive Brazil mills toward ethanol, cut sugar output,” March 9, 2026. https://www.reuters.com/business/energy/energy-price-surge-drive-brazil-mills-toward-ethanol-cut-sugar-output-2026-03-09/

[15]Unica, Brazil Center-South sugar production data, February 18, 2026. https://observatorio.unica.com.br/listagem.asp?idMn=4

[16]Trading Economics, Urea data. https://tradingeconomics.com/commodity/urea

[17]FertilizerWorks, Urea Basket Price, March 5, 2026. https://fertilizerworks.com/sites/default/files/reports/Urea%20Basket%20Price%20STATS%20Page%2005%20March%202026.pdf

[18]DTN, “Seven of Eight Major Fertilizers Higher,” March 4, 2026. https://www.dtnpf.com/agriculture/web/ag/news/crops/article/2026/03/04/seven-eight-major-fertilizers-higher

[19]Czapp, “Middle East Conflict Triggers Disruptions in Food Supply Container Freight”. https://www.czapp.com/analyst-insights/middle-east-conflict-triggers-disruptions-in-food-supply-container-freight/

[20]Bloomberg via Weekly Agricultural Markets Update, “EU Set to Suspend Some Duty-Free Sugar Imports for a Year,” March 13, 2026. https://www.bloomberg.com/news/articles/2026-03-13/eu-set-to-suspend-some-duty-free-sugar-imports-for-a-year

[21]International Sugar Organization via Yahoo Finance, “Outlook: Global Sugar Surplus Weighs”. https://finance.yahoo.com/news/outlook-global-sugar-surplus-weighs-193021257.html

[22]USDA Foreign Agricultural Service, December 2025 sugar production estimates. https://apps.fas.usda.gov/psdonline/circulars/sugar.pdf

[23]Czarnikow via Czapp, “Sugar Production Peaks in 2025-26 but Set to Ease in 2026-27”. https://www.czapp.com/analyst-insights/sugar-production-peaks-in-2025-26-but-set-to-ease-in-2026-27/

[24]Reuters poll on sugar prices, March 6, 2026. https://tradingeconomics.com/commodity/sugar/news/532689

[25]Trading Economics, Sugar data. https://tradingeconomics.com/commodity/sugar

[26]Reuters poll on sugar prices, March 6, 2026. https://tradingeconomics.com/commodity/sugar/news/532689

[27]Barchart, Urea futures data. https://www.barchart.com/futures/quotes/JC*1