Global fertiliser dependency on Gulf exports: what if Hormuz is disrupted?

Heightened tensions between Israel and Iran have raised concerns about potential disruptions in the Strait of Hormuz, which could affect global fertiliser trade. This may tighten global supply chains by 33% and drive fertiliser prices higher.

Due to the ongoing conflict between Israel and Iran, the Strait of Hormuz, the only maritime entry point into the Persian Gulf, is at risk. According to the Iranian news agency IRINN, Iran may consider closing the Strait of Hormuz. This strait is a vital chokepoint for global oil, gas, and fertiliser trade. Closing it would have severe consequences, leading to a spike in prices and significant disruptions to trade.

Exports from Qatar, Saudi Arabia, UAE, Iraq and Iran heavily rely on Strait access, and major importers, including India, Southeast Asia, and America, would be impacted. About 33% of the world’s fertilisers, including sulphur and ammonia, pass through the 21-mile-wide Strait of Hormuz, which separates Oman’s Musandam Peninsula from Iran. Disruptions in vessel movements could jeopardise much of the nitrogen, phosphate, and sulphur trades.

As per Kpler data, 1.5 Mt of fertilisers from the region have been transacting in June to date.

The outbreak of war has already led Iranian fertiliser producers to halt urea and ammonia output. Egyptian urea plants remain offline due to a disruption to the gas supply from Israel; similarly, gas supply to Jordan has already been affected. Urea prices in the US, Brazil, and the Middle East have increased. Saudi Arabia has raised urea prices to $450/t FOB, significantly up from $402/t FOB. Brazil's urea CFR prices have also increased by $32/t. Suppliers have withdrawn from the market in response to the escalating Israel-Iran conflict.

If Iran closed the Strait of Hormuz, sulphur and urea supplies would be affected by a drop of 44% and 30% annually. And Monthly shipments from the region total about 3 to 3.9 Mt of fertilisers, with sulphur around 1.5 to 1.8 Mt, urea comprising 1.2 to 1.5 Mt, and ammonia & phosphate at around 400 to 500 Kt each. In that case, the supply will be affected to reach the global market. Although ports like Ras al Khair port are not directly on the Strait, but vessels transit through it, making phosphate and sulphur trade susceptible to interruptions.

There are no viable alternatives for large vessels: Most mega-ships (VLGCs for ammonia and bulk carriers for sulphur) cannot easily be rerouted. Land routes are limited by pipeline and trucking capacity. For example, Saudi Arabia’s East-West pipeline can divert some oil but not fertilisers.

The annual fertiliser export in % from the Middle East (UAE, Qatar, Iran, and Saudi Arabia)

Source: Kpler insight

If the situation arises, cargo insurance premiums will rise, freight rates will increase, and Russia will begin exporting more volumes and increase market share at competitive prices. While sulphur supply from other regions may increase. However, it will be challenging to compensate for the supply from the Middle East.

Analysing the dependency on Gulf fertilisers, along with essential fertiliser suppliers Egypt, Jordan, and Israel, reveals that exports from these regions will significantly impact the Asian and African markets. Morocco notably relies on sulphur and ammonia from the Middle East, which are crucial for producing phosphate fertilisers for the export market. This dependency has the potential to disrupt the global phosphate market.

Overall, the West of Suez will be impacted as phosphate fertiliser exports from Saudi Arabia to the USA have increased recently. At the same time, Latin America and Europe source a lot of urea from the Middle East.

2024, Global dependency on Gulf fertiliser exports by regions

Source: Kpler

The conflict between Israel and Iran is estimated to add severe disruption to fertiliser exports from the Gulf, both directly through the closures of the Strait of Hormuz and indirectly through freight inflation, insurance risks, and broader supply chain volatility. However, since Iran has not officially announced any plans to close the strait and also considering geopolitical alliances with other Middle East countries, there is a limited chance that Iran will risk disrupting the flow of trade in the Middle East.

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