Gulf Crisis Threatens Fertilizer Supply

The Persian Gulf is a critical hub for global crop nutrients, with roughly one-third of the world's fertilizer trade passing through the Strait of Hormuz. Key producers like Qatar, Saudi Arabia, the UAE, and Iran all depend on this waterway to ship their products to international markets. Nitrogen-based fertilizers, such as urea and ammonia, are particularly exposed. Approximately 45% of all urea exports originate from Persian Gulf facilities. Qatar alone, home to Qatar Fertiliser Company (QAFCO), the largest single-site urea producer, accounts for about 11% of global urea exports. Iran also contributes a significant 10% to 12% of the global urea trade. The disruption has had an immediate impact on prices, with urea barges in New Orleans seeing prices jump by $60 to $80 per ton shortly after the escalation. This is occurring at a critical time for the Northern Hemisphere, which is entering its spring planting season and has peak fertilizer demand. Unlike crude oil, there are no strategic reserves for fertilizer to cushion such a supply shock. Key fertilizer components beyond urea are also affected. Nearly 50% of global sulfur exports, a crucial element in the production of phosphate fertilizers, transit through the Strait of Hormuz. Additionally, about 20% of the world's seaborne ammonia shipments originate from the Gulf. Major producers like SABIC Agri-Nutrients and Ma'aden in Saudi Arabia are significant players in these markets. The production of nitrogen fertilizer is energy-intensive, relying heavily on natural gas as a primary feedstock. Recent attacks have already led to the suspension of urea and ammonia production at QatarEnergy's major complex in Ras Laffan due to disruptions in the gas supply. Major agricultural economies are heavily reliant on these supplies. India, for example, sources a significant portion of its urea and diammonium phosphate (DAP) from the Gulf. Brazil is also a major importer of nitrogen and phosphate fertilizers from the region, which are vital for its soybean and maize production. The crisis is forcing a rapid rerouting of supply chains. Vessels are being diverted around Africa's Cape of Good Hope, a move that adds significant fuel costs and weeks to transit times. This logistical challenge is compounded by the withdrawal of war-risk insurance coverage for the Persian Gulf, making any potential transit economically unviable for many shippers. The current situation echoes the fertilizer price surge seen in 2022 following Russia's invasion of Ukraine, which highlighted the sensitivity of global food systems to fertilizer availability. With a prolonged disruption in the Gulf, analysts warn of the potential for declining crop yields and a subsequent increase in global food prices in the coming months.