The Strait of Hormuz it is not only crucial for fossil fuel trading: about a third of world trade of fertilizers by sea passes through this route: we are talking about about a million tons per month of raw materials essential for modern agriculture: ammonia, urea, phosphates and sulphur. These products are transported almost exclusively by sea: in fact, there are no large-scale alternative land infrastructures that can quickly replace the passage through the Strait. A prolonged reduction in the raw materials needed to produce fertilizers – and in the natural gas needed for their production – can lead to food risks for several world economies already fragile from this point of view, such as Brazil, India and some African countries.
The problem does not only concern raw materials, but also production
Fertilizers are fundamental products for food production: those nitrogenous, for example, they are essential for crops such as wheat, corn and rice, because they provide nitrogenone of the essential nutrients for plant growth. Without an adequate supply, yields can decrease even by 30-50% depending on the crops. It is no coincidence that around a third of agricultural production costs are linked to fertilisers. Without the latter, yields drop, generating direct effects on food availability. The bond between Hormuz and fertilizers it is even narrower when considering the origin of these products. In fact about the 45% of global production of urea, one of the most used fertilizers in the agricultural sector comes from the area Persian Gulf.
A key point to clarify is that many fertilizers, particularly nitrogenous ones, are derived from natural gas: the gas therefore serves both as a raw material and as a source of energy to produce ammonia. This means that any energy tensions are automatically reflected in the availability of fertilizers. The Persian Gulf is one of the main production centers of raw materials essential for modern agriculture: ammonia, urea, phosphates and sulphur.
But the problem isn’t just about transportation: it’s also about production. The blockade of the Strait prevents not only exports, but also theaccess to raw materials needed to produce fertilizers. In some countries, such as Egypt, the reduction in gas supplies has already affected urea plants, while in South Asia – India, Bangladesh and Pakistan – several companies have had to slow down or stop production due to the lack of energy assets.
The consequences of the blockade: rising prices and markets under pressure
The first consequences of a closure or severe limitations on maritime traffic are already evident in prices. The price of urea increased by approximately 30%, reaching peaks higher than 600 dollars per ton. In some markets, increases exceeded 40%.
These price increases are not just a market issue, but generate a domino effect throughout the world agri-food supply chain: in fact, when fertilizers become more expensive or scarce, farmers tend to reduce their use. In the medium term, this may translate into lower yields and higher food prices. According to the Carnegie Endowment for International Peace, the reduction in the supply of fertilizers can directly affect agricultural production and therefore thefood inflation. A key point that makes this crisis particularly critical is l‘time element. Fertilizers cannot be used at any time of the year, but must be applied in a specific period, that of sowing. In Europe and many other agricultural areas, farmers they purchase these products between March and April to use them in the immediately following months.
If at this stage the fertilizers do not arrive, or become too expensive, the damage is not recoverable. Farmers are forced to reduce cultivated areas or to give up certain crops. The consequences are starting to emerge on the medium-long termin the following months, when the harvests are poorer. Even if a rapid reopening of the Strait of Hormuz occurred, returning to normality would take time. There production, transportation and distribution of fertilizers do not start up immediately and this delay would be enough to compromise an entire agricultural season.
Global dependencies and food security risks
A further critical element concerns the geographical dependence of some countries, such as India and Brazil, which import a significant share of fertilizers from the Middle East and are therefore particularly exposed to the consequences of a total or partial blockage of supplies. Even many African economies, already fragile from a food point of view, they risk suffering serious repercussions. In some cases, the crisis is not just about transportation: the lack of natural gas is forcing the closure of local fertilizer production plants.
Following this news and price increases, some governments are starting to take measures to protect their economies from this crisis. There Chinafor example, decided to draw on its strategic fertilizer reserves to avoid shortages during the planting season. This is an extraordinary measure that highlights how the crisis is not limited to the markets, but is already influencing them national agricultural policies. Urgent interventions are also being evaluated in Europe: European Commission opened up the possibility of temporarily suspend the duties onimport of ammonia and ureawith the aim of reducing costs for farmers by approx 60 million euros. However, this is a stopgap measure, designed to mitigate the immediate effects, while awaiting structural solutions which are currently still being defined.
