BERLIN
The effective closure of the Strait of Hormuz sent shockwaves through global energy and fertilizer markets amid rising costs threatening production schedules of farmers and the world’s food supply security.
The ongoing armed conflict in the Middle East, which began on Feb. 28, when the US and Israel jointly attacked Iran, has triggered some sort of a domino effect in agricultural input costs.
Regional tensions in the Middle East have continued to escalate since the start of US-Israeli attacks on Iran, while Tehran has retaliated with drone and missile strikes targeting Israel, along with Jordan, Iraq, and Gulf countries hosting US military assets, causing casualties and damage to infrastructure while disrupting global markets and aviation.
Tehran has also imposed control over the Strait of Hormuz, a critical waterway for global energy and other supplies to most of Asia.
Fertilizer and energy supply line disruptions in the region halted the trade lines that are essential to global agriculture, bringing about a food crisis risk even deeper than in 2022, when the Russia-Ukraine war started.
The near-complete halt of shipping traffic in the vital energy and oil waterway, the Strait of Hormuz, disrupted 38% of global nitrate-based fertilizer supply and 20% of phosphate-based fertilizers, posing a direct food security risks to farmers across the globe.
The ongoing crisis in the Middle East, the world’s fertilizer and energy supply hub, is deepening every day, according to real-time data analytics firm Kpler and global commodity analysis company CRU.
The Strait of Hormuz led to a 33% contraction in the global fertilizer supply chain, while the region’s annual urea exports of 22 million tons halted. Some 46% of global urea supply is sourced directly from the Gulf region, which is why the halting of exports stoked the crisis further.
Roughly half of the over 2.1 million tons of urea stockpile in the past two years could not be loaded onto vessels due to logistical disruptions. This shipment bottleneck could result in crop losses amid the global harvest season, experts say.
The sustainability of modern agricultural production relies on the uninterrupted supply of over 190 million tons of plant nutrition products used across the globe each year, according to the UN Food and Agriculture Organization.
The core of this supply is made up of 110 million tons of nitrogen fertilizers, but under current circumstances, the supply of this type of plant nutrition product has become the product segment most vulnerable to geopolitical crises due to its overreliance on natural gas for production.
Energy price fluctuations placed the largest segment of the global fertilizer market under high cost pressure.
The two other products in the same category following nitrogen-based fertilizers are phosphorus and potassium-based fertilizers, which account for 45 million tons and 40 million tons, respectively.
Experts say that even the slightest disruption in the supply chain of these three essential agricultural inputs could result in irreversible declines in global crop yield estimates.
The Strait of Hormuz is not a mere energy corridor but also the world’s most critical transport route for strategic raw materials like urea and ammonia for global markets.
Saudi Arabia, Qatar, the UAE, and Bahrain are among the largest suppliers in the global nitrogen fertilizer market, alongside Iran.
With the start of the planting season in the northern hemisphere, any disruption in shipping routes can affect agricultural productivity and food supply.
Meanwhile, the prices of natural gas, which accounts for around 80% of nitrogen fertilizer costs, have surged rapidly, prompting major facilities to halt operations.
Urea and ammonia prices saw dramatic price hikes after the effective closure of the waterway, with urea rising from $482.5 per ton on Feb. 27, before the Middle East armed conflict started on Feb. 28, to $720 by mid-March, up around 50%.
Middle Eastern ammonia prices surged 24%, nearing $600 per ton.
Global supply security is under threat amid military strikes on regional energy infrastructure and successive force majeure declarations by energy companies.
A force majeure declaration allows companies to suspend contractual obligations due to events beyond their control, temporarily relieving them from delivery commitments without penalties.
India, one of the largest fertilizer consumers, implemented a shift in natural gas allocation to maintain domestic market balance by downgrading the fertilizer sector to a secondary priority.
India lost around 800,000 tons in its monthly urea production of 2.6 million due to limiting industrial gas supply to the 70-75% range, while ammonia import disruptions brought local production to a standstill, as the country sources 80% of its ammonia needs from the Gulf region.
China imposed export restrictions due to its reliance on the Middle East for half of its sulfur imports and the extreme price volatility. The global phosphate fertilizer production hub’s withdrawal and the halt of shipments from Saudi Arabia rendered agricultural countries like Brazil unable to meet 30% of their phosphate risks, leading to a serious stock crisis.
Meanwhile, Australia expects current stocks to run out by mid-April as the country sources over 60% of its urea from the Middle East, while efforts to seek alternatives are hindered by high logistics costs.
At the same time, European markets are waiting for some extraordinary bureaucratic measures, such as the suspension of the Carbon Border Adjustment Mechanism in the face of high fertilizer costs.
Qatar’s state-owned fertilizer producer QAFCO shut down its urea plant with an annual capacity of 5.6 million tons over energy supply disruptions, while major firms like Agritech Limited in Pakistan and Bangladesh completely halted production.
Fertilizer price forecasts rise, American farmers send letter to Trump
Fitch Ratings raised its 2026 ammonia and urea price expectations by around 25% due to uncertainties over how long the conflict and the disruptions will last.
Fitch warned that the prolonged closure of the Strait of Hormuz could push up fertilizer price expectations even higher.
It said nitrogen-based fertilizers would be the most affected by the closure of the vital waterway.
Meanwhile, American farmers are entering the spring planting season amid heavy financial burden, as the American Farm Bureau Federation warned corn and grain production is facing a catastrophic time with diesel prices exceeding $5 per gallon.
The federation's president, Zippy Duvall, addressed US President Donald Trump in a letter he wrote last week, calling for agricultural inputs to be strategically prioritized.
Duvall said the situation would not only threaten food security but also contribute to inflationary pressures across the US economy, suggesting measures like using the US Navy to ensure shipment security and leveraging federal funds to eliminate insurance and financing barriers.
Hormuz closure marks 2nd major global fertilizer production disruption since 2022
Global fertilizer production previously suffered a major disruption in 2022, when the ongoing Moscow-Kyiv war started.
Veronica Nigh, chief economist at the US-based The Fertilizer Institute, said in a recent statement that the conflict in the Middle East could become far more dire if it persists, compared to the beginning of the Russia-Ukraine war.
Maximo Torero, chief economist at the UN Food and Agriculture Organization, recently said that the energy shock amid the conflict affected the global food system through the fertilizer markets, while the insurance crisis in maritime shipping led the fertilizer supply to a standstill.
“The loss of Gulf exports creates an immediate global shortfall with no quick substitutes,” he said, according to a report by the US-based NPR on Friday.
Torero stated that the most tangible impact of the conflict has been in logistics costs, while insurance premiums skyrocketed from 0.25% of a ship’s value to 10% for high-risk vessels.
He noted that the insurance sector focuses on concrete damage records instead of diplomatic progress, so even if the conflict ends soon, it will take months before maritime trade returns to normal shipping capacity, while insurers will lower premiums after seeing no new damage claims have been filed in a while.
Torero said that fertilizer exporters in the region will continue to see high shipping costs and major losses in global competitiveness, and the only way to stabilize is to reopen the Strait of Hormuz.
* Writing by Emir Yildirim in Istanbul.
