Fertilizer Costs Surge Amid Iran War

Prices for urea, a key ingredient in fertilizers, have surged since the end of February, when the U.S./Israel war with Iran began and the Strait of Hormuz was effectively blocked. Around 35 percent of the world’s supply of urea comes from the Gulf states, and without its ability to make safe passage through the Strait of Hormuz, the world is experiencing a urea supply shortage. This issue is twinned with the fact that nitrogen-based fertilizer production heavily relies upon natural gas, and with gas flows also disrupted due to the maritime chokehold having practically closed, energy prices have risen, which has made fertilizer production more expensive too.

Also adding to the agricultural industry's woes is the fact that China, a major exporter of fertilizer, has started to restrict its own exports of nitrogen-potassium fertilizer blends in order to protect its domestic market. Meanwhile, Qatar has shut down the world’s largest urea plant, following the closure of QatarEnergy’s gas output, after Iranian strikes on its facilities.

Data from Trading Economics shows that between February 23 (prior to the U.S./Israeli attacks on Feb. 28), and April 13, urea prices jumped from $465.5 per ton to $599 per ton - an increase of 51 percent. This kind of shock was last seen in 2022, when urea prices were disrupted by Russia’s war with Ukraine, reflecting once more the vulnerability of vital commodity supply chains.

Farmers are now facing a dual shock of both high fuel and high fertilizer prices, forcing many to reduce usage, which in turn increases the chances of reduced yields. Experts warn that a prolonged scenario for the fertilizer supply crisis would have significant implications for food security and food prices.