Middle East fertiliser exports decline by 70% as Iran war disrupts supplies

The Middle East conflict has disrupted fertiliser supplies from the region to global markets, posing a risk to global food production and crop yields, analysts said.

Volumes have plummeted as the Strait of Hormuz, a vital trade route, remains largely closed, with ships attempting to transit the waterway facing attacks.

Saudi Arabia is moving fertilisers overland to its Red Sea ports, but limited volumes mean this has not been a viable alternative to shipments through the strait.

"Export volumes have declined by roughly 70 per cent to 75 per cent, tightening the global supply of sulphur, nitrogen [urea], and phosphate fertilisers," said Madeleine Overgaard, senior manager of agriculture data at Kpler. Shipments fell to 994,000 tonnes in September, compared with 3.41 million tonnes in the same month last year, she added.

She expects export volumes "to hold near current subdued levels through year-end unless the regional security situation improves". That comes as crude supplies from the Middle East recover towards pre-conflict levels.

The Gulf is a vital supplier of urea and other fertiliser ingredients, including nitrogen and sulphur. The UAE, Saudi Arabia and Qatar are key exporters of these products, which are needed to boost crop yields, especially in countries such as India – one of the world's top producers of rice and wheat.

The Gulf accounts for 25 per cent to 30 per cent of global sulphur production, and up to 50 per cent of global seaborne trade, virtually all of which transits the strait, Kpler data shows.

While top global producers such as China and the US consume nearly all of their domestically recovered sulphur, Gulf suppliers export the vast majority of theirs. The situation is similar for urea, where the Gulf represents from 10 per cent to 12 per cent of global production yet commands 30 per cent to 40 per cent of global seaborne trade.

The world's largest urea producers, China and India, absorb their output domestically, leaving Gulf producers to drive the seaborne merchant market.

"Continued attacks on commercial vessels in transit corridors have created significant hesitation among vessel owners and charterers," Ms Overgaard said. That was disrupting supplies, she added.

The Iran war began on February 28, when the US and Israel launched attacks on Tehran. Iran retaliated by attacking Gulf countries, including their energy and civilian infrastructure.

The strait was closed as a result, disrupting shipments of crude, liquefied natural gas and fertilisers from the region to global markets. Qatar's LNG sites were severely damaged in Iranian attacks, and oil prices soared to more than $120 a barrel. They remain elevated amid Middle East supply concerns.

Risk to food production

The situation in the region is expected to pose a risk to food production globally, with a lack of fertiliser leading to reduced crop yields. Concerns over shortages could also force farmers to plant less, which in turn could fuel global food inflation.

"Fertiliser deficits experienced today may inevitably show up in reduced harvests and higher food inflation downstream next year," Ms Overgaard said.

Global food prices continued to rise in September, driven by logistical constraints in the Black Sea region as the war in Ukraine continues, and by uncertainty over shipping through the strait, which kept fuel, fertiliser and freight costs elevated.

The UN Food and Agriculture Organisation's food price index, which tracks the most globally traded food commodities, averaged 136 points in September, up two points, or 1.5 per cent, from August.

Price indexes for crop-based commodity groups such as cereals, vegetable oils and sugar all increased from the previous month, with the overall index up 5.8 per cent on an annual basis.

However, alternative suppliers are emerging easing pressure on global fertiliser markets. China has become the swing supplier of fertilisers, while Russia has absorbed some of the displaced demand, Rystad Energy said.

Oman and the US have emerged as key suppliers of LNG, a critical feedstock for fertiliser production in India, but "none of these fully closes the supply gap, and they close it at a higher price", said Rajeev Pandey, senior analyst at Rystad Energy.