Indonesia is experiencing a similar trend. Its palm oil exports rose 36.26% year-on-year to 4.54 million tonnes in January–February, according to data cited by the Jakarta Globe. Eddy Martono, chairman of the Indonesian Palm Oil Association, said domestic crude palm oil prices have already risen by 8%–10% since the onset of the conflict.
However, he warned that future exports could face downward pressure as insurance premiums and freight costs surge by as much as 50%.
At the same time, supply-side pressures are mounting. Fertiliser costs have surged due to disruptions linked to tensions around the Strait of Hormuz, raising production costs significantly. Smallholder farmers, who account for about 15% of output in Malaysia and 30% in Indonesia, may delay replanting as costs climb.
“If the conflict drags on, fresh fruit bunch production will decline due to fertiliser costs rising by around 50%,” the Indonesian Palm Oil Association warned.
Policy shifts are adding further strain. Indonesia plans to increase its mandatory palm-based biodiesel blending ratio from 40% to 50%, known as the B50 standard, starting July 1. This is expected to divert around 1.5 million tonnes of palm oil into fuel production, reducing export availability by the same amount.
Structural challenges are also emerging. In Malaysia, palm plantations are ageing, with around 35% of trees expected to be over 19 years old by next year, up from about 30% currently, a trend that will likely weigh on yields.
Weather risks could worsen the situation. Forecasters warn that El Niño may return in the second half of 2026, potentially driving temperatures in Southeast Asia to record highs. The US National Oceanic and Atmospheric Administration estimates a 50%–60% chance of El Niño forming between July and September.
Prolonged dry conditions could stress oil palm trees, leading to reduced yields. Historical data suggests El Niño could cut fresh fruit bunch output by up to 16% and crude palm oil production by up to 14% in subsequent years, with impacts typically emerging 15 to 18 months after onset.
The most pressing concern is the convergence of surging demand and tightening supply. If the conflict persists, fertiliser costs remain elevated and adverse weather materialises, the world could face what analysts describe as a structural supply shortage, not just a temporary price spike, but sustained pressure across the global food system.
Rising palm oil prices may therefore signal more than a commodity shift. They could be an early indicator of deeper vulnerabilities in the global food chain, where energy, agriculture and geopolitics are becoming increasingly intertwined.
What is happening to palm oil today may well be the first warning of a new wave of global food inflation.
Dining and Cooking