The Other Thing (Not?) Coming Down The Strait of Hormuz

The US-Iran War has thrown global fertilizer prices into chaos. It may be too late to contain the effects. 

Most discussion of the economic impacts of the US war with Iran has been focused on oil. After all, gasoline prices are publicly displayed at every gas station, and people purchase it on a regular basis. Additionally, the Middle East is widely recognized as the world center of petroleum production, with a large number of so-called “petrostates.” The amount of attention placed on oil, however, conceals the fact that the closure of the Strait of Hormuz also caused massive price increases in another, equally important commodity: fertilizer. 

The importance of the Middle East to world fertilizer production often goes overlooked, but the nations of the Arabian peninsula are major players in both nitrogen and phosphorus based fertilizers. The reason is a byproduct of their reserves in oil and gas: The chemical reactions that create nitrate fertilizers, such as urea and ammonia, require both large amounts of power and large amounts of hydrogen. Both of those things are generally provided by natural gas. Phosphate based fertilizers, by contrast, require large amounts of elemental sulfur to produce. Most elemental sulfur is created as a byproduct of oil refining.

The Iranian shutting down of the Strait of Hormuz stopped the supply of these goods in the same way it stopped the movement of Middle Eastern oil. In March, the American Farm Bureau Federation, a lobbying group for American farmers, wrote to President Trump asking him to “protect fertilizer supplies”, while farmers planted less corn and more soybeans, which require less nitrogen. China, a major fertilizer producer that had already restricted exports before the conflict, further constrained exports in response to the reduction in sulfur imports from Saudi Arabia. International groups warned of catastrophic consequences across the global South, with some comparing the situation to increases in food prices before the Arab Spring. 

Now the Strait of Hormuz may be reopened for two weeks, and oil and fertilizer would be able to move again. That doesn’t mean it will. Oil tankers largely have not returned to crossing the strait for reasons like high insurance costs. Oil is more valuable than fertilizer, meaning increases in insurance and transport costs would hit the latter even harder. Unlike oil, the use of fertilizer is time sensitive: Most fertilizer is used during the spring, making that season the most critical time for supplying it. In the words of Noah Gordon and Lucy Corthell of the Carnegie Endowment for International Peace, “most farmers order fertilizer in March, to apply in April and May.” The war shut down the strait through March, and, if the ceasefire holds, there could be a window in April. Given the weeks it may take to transport that fertilizer, however, it may already be too late. 

Additionally, because of the interconnected nature of fertilizer production, even non-Gulf nations that produce fertilizer sometimes require materials from the Middle East. As mentioned before, more than half of the sulfur China uses to produce fertilizer comes from Saudi Arabia. India has already reduced its production of fertilizer due to shortages of the natural gas needed to produce it, which it imports mostly from the Gulf. Even if all the fertilizer in the Middle East can be transported in time, these reductions in production will have an effect.

The crisis is not totally unprecedented. Russia is also a major exporter of fertilizers, and its February 2022 invasion of Ukraine touched off a crisis as fertilizer prices spiked, exacerbated by the fact that Ukraine is a major wheat producer and the war kept it from exporting. Ukrainian grain began moving again by the end of 2022 due to the Black Sea Grain Initiative, which the UN has already cited as an example of how fertilizer can be moved from the strait for humanitarian purposes. There was no mass famine then, and there will probably not be mass famine now, but shortages can have effects short of famine. Price increases in fertilizer from the Ukraine War are estimated to have driven twenty-seven million people into poverty. Any effects of the Iran War will be on top of this prior increase in prices, caused by the reduction in Russian supply. 

In the hours after the ceasefire was declared, the cost of oil futures plunged by thirteen percent. The prices of the critical ingredients in fertilizers, however, haven’t moved.