Kieran Coughlan: Higher prices for oil and other farm inputs — what to expect in 2026
The perceived risks of the lack of availability of oil and disruption to shipping through the Strait of Hormuz are not actually major issues for Ireland.
The conflict in Iran and across the wider Middle East region risks escalating in a variety of ways that could ultimately have a significant impact on the way our businesses and homes operate.
On world markets, crude oil prices are up, but not massively so. At the time of writing, crude prices are around $85 per barrel, which is about 50% higher than prices at the start of the year (below $60 per barrel).
Historically, however, these prices are not high — in fact, a price of $85 per barrel would be mid-range over a 20-year look back.
While the dollar-to-euro exchange rate is on par with the start of the year at about $1.17 to the euro, the dollar has weakened by about 8% over the past 12 months, providing some masked relief.
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At approximately 159 litres per barrel, a $25 increase in the price of oil should see movement of about 14c per litre of crude before Vat.
Of course, this is a simplified calculation; the costs of transport and fractional losses in refining mean that the price increases at the pumps for diesel or petrol can reasonably be expected to be higher.
Quotes last week for tractor diesel are up as much as 30c per litre, including Vat, compared with those that applied at Christmas. The perceived risks of the lack of availability of oil and disruption to shipping through the Strait of Hormuz are not actually major issues for Ireland.
Interestingly, a near-insignificant amount of oil imports came from the Middle East to the UK in 2024. This is relevant for Ireland because the majority of our imports of ready-to-use fuel come from refineries in the UK, and imports to Ireland’s only refinery at Whitegate are also from non-Middle East regions.
The supply-side shocks that could emerge for Ireland are more geopolitical, as countries that presently rely on oil from the Middle East seek alternative supplies and may exert political pressure to secure fuel for their nations.
Currently, Iraq, OPEC’s second-largest producer of oil, has cut output by nearly 1.5m barrels per day, as its exports via the Strait of Hormuz are effectively paused.
The Middle East region supplies over half of all Asian imports of crude, and a slowdown in exports will, in the first instance, lead to inflation. It could also signal stalling economies in the region and trigger a wider recession, as well as a potential rise in the dreaded stagflation.
Back home on the farm, diesel is thankfully still available, albeit at inflated prices, so at least the farm business can continue to operate. The worry about getting supplies is minimal.
There are questions, however, about whether fertiliser wholesalers will ratchet up prices and whether the fallout from higher oil prices will also increase the cost of bale wrap, silage covers, and other farm inputs.
One would expect that the majority of fertiliser in the country for 2026 is already imported and manufactured, so an immediate price hike by fertiliser companies seems unwarranted.
On a broader macro level, there are a variety of potential implications. Will the uptick in oil prices see more grain diverted to oil equivalents, such as more oilseed rape or increased ethanol production?
Will higher oil prices generally translate to an upward trend in grain prices? If grain prices rise, will the grain-to-milk feed price ratio cause a stall or drop in milk production, ultimately lifting milk prices? Perhaps that’s just looking for a silver lining. For the moment, it’s a case of holding on for the ride and seeing how things play out.
- Kieran Coughlan is a specialist in farm tax advice and is Principal at Coughlan Accounting & Taxation Services Limited. Kieran is a Chartered Tax Adviser (CTA) and Fellow of ACCA.
