The Iran war leaves Asia without fertilizers
China also restricts the export of these products to have enough reserves
BeijingThe war against Iran is impacting the global fertilizer trade: its scarcity will drive up prices and lead to less abundant harvests. Most fertilizers are produced in the Middle East and also transit through the Strait of Hormuz, just like oil and gas. In fact, one-third of the world's fertilizer trade passes through this strait, and its main destination is Southeast Asia. Asia already fears not having enough food due to the conflict.
The blockade particularly affects developing economies. Countries like Sri Lanka, India, Thailand, and Indonesia are preparing to face food shortages. The rise in energy prices, which affects the entire food production and logistics chain, is combined with the lack of fertilizers.
27% of Pakistan's and Thailand's fertilizer imports come from the Persian Gulf. In Sri Lanka, the share reaches 36%. In the Northern Hemisphere, the planting season begins now, in spring. In contrast, in some Southeast Asian countries, it is in June, with the rainy season. Be that as it may, fertilizers are urgent.
To produce fertilizers, natural gas is needed. This is why a large part of their production is concentrated in the Persian Gulf, where natural gas is cheap. Specifically, it is estimated that energy accounts for 70% of their production costs. Many are nitrogen-based, such as urea, which is the most traded fertilizer and aids plant growth. Its price rose by 40% in the first two weeks of the war.
Another important ingredient in fertilizers is phosphate, which is used for root development. Saudi Arabia exports one-fifth of the world's phosphate. Other exporting countries include Iran and Qatar. Furthermore, the Middle East also produces 40% of the world's sulfur, from the refining of oil and natural gas, which is also used for fertilizer production.
The blockade of the Strait of Hormuz is not the only problem. Bombings by the United States and Israel against Iran and the Persian country's response, which has attacked neighboring countries, have affected fertilizer production itself. For example, Qatar Energy has been forced to shut down the world's largest urea production plant due to the suspension of liquefied natural gas production from attacks on its facilities.
Fertilizer shortages endanger food security, especially in the region of South Asia and Sub-Saharan Africa, according to a report by the Kiel Institute for the World Economy, a German economic research center. Developing countries will suffer the most from the impact of this crisis. Julian Hinz, director of the trade policy research group, states that “an energy crisis quickly turns into a fertilizer crisis and, subsequently, into a food crisis, especially in countries that depend on imports at each stage”.
The United Nations World Food Programme has warned that the closure of the Strait of Hormuz could increase the number of people in a situation of food insecurity in Asia by 24%, as it estimates that food prices could rise by between 10% and 15% in countries such as India, Sri Lanka, and Pakistan.
Affected countries
China is also one of the world's leading fertilizer manufacturers, especially those containing phosphates and nitrogen. However, it imports 47% of the sulfur it needs to produce them from the Persian Gulf. Last week, the China Association of Agricultural Production Materials asked companies to release fertilizer reserves to deal with the crisis. On the other hand, the Asian giant is also a major consumer of fertilizers and, faced with the crisis generated by the war, the Chinese government has restricted its export, especially of urea, with the aim of guaranteeing domestic supply.
This, in turn, will affect countries like India, which imports Chinese fertilizers, in addition to those from the Middle East. Specifically, it imports more than 40% of urea and phosphate fertilizers from there. Faced with this situation, the Indian government has announced subsidies for farmers. The subsidies will have a cost equivalent to 0.7% of the GDP for the fiscal year 2025-2026.
India has long aimed to increase domestic fertilizer production, but to do so it must import natural gas. Currently, it manufactures 2.6 million tons of urea per month. The government finances up to 70% of the cost of gas needed by producing companies. Despite this, some plants have been forced to slow down production due to the blockade of the Strait of Hormuz and the lack of fuel.
