Following the United States-Israeli attack on Iran and the ongoing war, trade has been severely disrupted between Asia and Europe. According to the International Energy Agency (IEA), the world is currently facing the worst oil disruption in history. The energy shortages felt over the last two and a half months have had a knock-on effect on other sectors, particularly on the fertiliser industry, leaving farmers around the globe without the inputs they need for their crops to grow, which could lead to severe food shortages in the months ahead.
Following the attack, Iran shut the Strait of Hormuz, a key trade corridor connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. The Strait is used to transport around 20 percent of the world’s oil when fully operational, but only a small fraction of that has passed through the waters in the last two months. This has resulted in widespread fuel shortages across many parts of the world, leading governments to ration oil and gas use.
One of the sectors being hit hard is the fertiliser industry, as the transport of both fuels to produce inputs and fertiliser itself is significantly restricted. The shortage comes at the worst time for much of the northern hemisphere, where it is the prime planting season. “In the worst case, this means lower yields and crop failures next season. In the best case, higher input costs will be included in food prices next year,” explained the deputy executive director of the World Food Programme, Carl Skau.
Two major fertiliser nutrients, Nitrogen and phosphate, are under immediate threat from the blockade on the Strait of Hormuz. Nitrogen supplies, including urea, the most widely traded fertiliser, used to help plants grow and boost yields, have felt the biggest impact due to shipping delays and the rising price of LSG — an essential ingredient in production.
Several countries rely heavily on the Gulf region for their fertiliser supplies, and while some have reserves, others are already facing shortages. Trade beyond the Gulf region could be further disrupted in the coming months as countries focus on meeting domestic needs. For example, in India, the government is now prioritising the domestic market and using its urea supply for fertiliser production.
In early May, Svein Tore Holsether, the CEO of Yara – one of the world’s biggest fertiliser producers, warned that the trade delays due to the war in Iran could cost up to 10 billion meals a week globally and would hit the poorest countries hardest. “We’re up to half a million tons of nitrogen fertiliser not being produced in the world right now because of the situation we are in,” Holsether said. He said that lower crop yields due to limited fertiliser use could spur a bidding war for food. He also urged European countries to consider the impact of a potential price war on the “most vulnerable” in other countries carefully.
Holsether emphasised that the lack of application of nitrogen fertiliser could decrease crop yields for certain crops by as much as 50 percent in the first season. “The fertiliser market is very global, so these parts are moving across the planet, but the main destinations would be Asia, South East Asia, Africa, Latin America, where you would see the most immediate impact from this,” the CEO explained. He also said that it could exacerbate the problem in areas of the world where fertiliser is already underused, such as in sub-Saharan Africa.
Roughly 80 percent of fertiliser used in sub-Saharan Africa is imported, often at a higher price than that sold in Europe due to high freight costs. For many African countries, fertiliser security is closely tied to food security, which is key for economic and social stability. The fertiliser shortage is likely to hit Africa’s smallholder farmers, who produce around 70 percent of sub-Saharan Africa’s food, the worst.
Meanwhile, in Latin America, both Brazil and Argentina are struggling with rising fertiliser costs. The two countries together contribute around 10 percent of the world’s wheat, 39 percent of maize, and 66 percent of soybean exports, according to U.S. Department of Agriculture (USDA) estimates. Both countries depend heavily on fertiliser imports, much of which comes from the Persian Gulf region.
While much of the planting takes place in the second half of the year in this region, the timing of shipments means that fertiliser bookings for delivery in the next few months are occurring now. This means that Brazil and Argentina are currently racing to find alternative supply chains to ensure that their crops do not suffer due to the lack of fertiliser.
With great uncertainty around when and how trade through the Strait of Hormuz will return to normal, several countries are seeking to develop alternative supply chains or are stockpiling fuel for domestic use. However, if the fuel and fertiliser trade continues to be disrupted for much longer, we can expect to see rising food prices and threats to food security in several regions of the world over the next year.
By Felicity Bradstock for Oilprice.com