Key Takeaways
Iran’s threat to shipping through the Strait of Hormuz is affecting about a third of the world’s fertilizer trade, raising prices 30% to 40% and threatening food supplies around the world.
Productive agriculture depends on fertilizer, and fertilizer depends on natural gas as its feedstock.
Iran is a major producer of urea, which is derived using natural gas, and India, the world’s second-largest urea producer, is dependent on natural gas from the Persian Gulf for its urea production.
Qatar’s urea production ceased after Iranian attacks on its gas production facilities.
The Trump administration is lifting and adjusting previous barriers to Venezuelan and Moroccan fertilizer supplies.
The war in Iran is threatening food supplies and disrupting fertilizer markets as the planting season is about to begin. About a third of the global fertilizer trade transits through the Strait of Hormuz, which Iran has effectively closed to traffic. Nitrogen‑intensive crops such as corn and wheat will be affected first, with higher feed costs eventually spilling over to other food products, including bread, poultry, and eggs.
Reuters reports that about half the world’s food is grown using fertilizers, which in some countries account for up to half the cost of grain production. U.S. companies import about 18% of the nitrogen fertilizer that is sold in the United States, drawing heavily on imports to cover the spring planting rush. The Fertilizer Institute predicts that U.S. farmers will be short some two million tons of urea this spring. Prices for nitrogen-based products, including urea, the most critical fertilizer, have increased by 30% to 40% since the conflict began. Fertilizer can represent between 15 to 25% of a farmer’s production costs. Corn, for instance, needs a lot of nitrogen, while soybeans need less, so U.S. farmers may plant more soybeans and less corn.
As Reuters explains, fertilizer production is energy-intensive, relying heavily on natural gas as a feedstock, with energy making up as much as 70% of production costs. The United States is currently the world’s top natural gas producer and supports a robust domestic fertilizer industry, but is still somewhat dependent on imports. Other countries that are dependent on liquefied natural gas (LNG) imports from the Persian Gulf are even more dependent on fertilizer imports. LNG is used to produce urea in some of the top-fertilizer producing countries. Qatar Energy halted output at the world’s largest urea plant after cutting gas production following attacks on its LNG facilities.
According to NPR, Iran, with vast gas reserves, was a top urea producer and exporter before the war. India, the world’s second biggest urea producer, is facing falling production rates as gas supplies are limited. Other countries, such as Pakistan and China, are also struggling to get gas supplies, often having to prioritize the gas needs of other industries above fertilizer production. Via Reuters, three Indian urea plants have cut output. India buys more than 40% of its urea and phosphatic fertilizers from the Middle East. Bangladesh has shut four of its five fertilizer factories.
Furthermore, about half the world’s exports of sulfur — a critical input in phosphate fertilizer — were also shipped out of the Strait of Hormuz. Fertilizer factories in India, Bangladesh, and Malaysia are moving to halt orders, cut production, or shut down altogether due to a shortage of feedstocks.
NPR reports that there is very little slack in the fertilizer supply chain because the product does not store well. Some of it is prone to blowing up, or it gets clumpy and hard to use with the slightest moisture. Fertilizer plants tend to operate at capacity and take years to construct. Unlike fuel, there are no strategic global stockpiles for fertilizers. To help farmers, the Trump administration is lifting barriers to fertilizer imports from Venezuela and Morocco.
Moreover, the Trump administration is conducting a five-year sunset review of the phosphate tariffs imposed at the start of the Biden administration in 2021, which caused fertilizer shortages and a price rise of about 30%. The dispute dates back to 2020, when fertilizer manufacturer Mosaic filed a petition alleging that Moroccan phosphate imports were being unfairly subsidized. After reviewing the case, the International Trade Commission and Department of Commerce imposed countervailing duties on those imports. More than 50 state grower groups, including the Texas Corn Producers Association, are urging the Department of Commerce and the International Trade Commission to revoke countervailing duties on imported phosphate fertilizers from Morocco and Russia as the sunset review begins.
Analysis
Just as the planting season is about to begin, fertilizer imports are being constrained due to the war with Iran. This shortage further highlights the extent to which energy is an essential input for the products we rely on, especially in agriculture. As the American Gas Association reports, U.S. agriculture is one of the largest consumers of natural gas, at 1.7 trillion cubic feet, accounting for almost 15% of all U.S. commercial and industrial natural gas consumption.
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