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- To disrupt the harvest: a third of the fertilizer trade stopped due to the Iranian crisis
To disrupt the harvest: a third of the fertilizer trade stopped due to the Iranian crisis
The crisis around Iran has paralyzed up to a third of the global fertilizer trade — about 3-4 million tons per month do not reach buyers, the UN structures told Izvestia. The disruptions threaten to hit the food security of countries in North Africa and Asia, which are heavily dependent on fertilizer imports through the Strait of Hormuz. Additional risks include rising oil prices and general disruptions in logistics, which are hitting the global economy and causing food prices to rise. In these circumstances, the key question is whether alternative suppliers, including Russia, will be able to compensate for the shortage and stabilize the market.
The crisis in the fertilizer market
The crisis in the Persian Gulf, which led to the de facto blockade of the Strait of Hormuz, caused an unprecedented disruption in the agrochemistry market. About a third of the world's maritime trade in fertilizers, primarily nitrogen, phosphorus and sulfur—containing fertilizers, passes through this route.
The main exporters of the region — Qatar, Saudi Arabia, Oman and the United Arab Emirates — were forced to reduce or completely stop supplies. Under these conditions, urea prices have increased by 30-40% since the end of February, and up to 60% in some segments. At the same time, strategic reserves are practically absent, which exacerbates the crisis in the midst of the sowing campaign in the Northern Hemisphere.
Maximo Torero, chief economist of the Food and Agriculture Organization of the United Nations (FAO), told Izvestia that the rise in urea prices was only the first manifestation of a broader crisis affecting the entire range of fertilizers passing through the Persian Gulf. And not only transportation, but also the entire production chain.
According to Maximo Torero, special risks are associated with three product categories. First of all, we are talking about ammonia, which is considered a key intermediate in the production of nitrogen fertilizers — exports from the region provide 20-30% of the needs of the global market. In addition, phosphate fertilizers, including diammonium phosphate, whose prices are already rising, were under attack. The third category is sulfur—containing components necessary for the production of phosphate fertilizers and also passing through the Strait of Hormuz.
— The key point is that the crisis is systemic in nature for the fertilizer market: with the actual shutdown of a third of world trade — 3-4 million tons per month — and the absence of strategic reserves, the deficit concerns not one product, but the entire balance of nutrients needed for agriculture, — said Torero.
The most vulnerable countries
The effects are most acutely felt in North Africa and sub-Saharan Africa. They are not only dependent on imported fertilizers, but also generally sensitive to rising food prices. Even countries with developed fertilizer production remain in the danger zone due to the general inflation in global markets.
—Egypt, despite its status as a major fertilizer producer and relatively low dependence on imports from the Persian Gulf countries, remains extremely vulnerable from the point of view of food security due to its high dependence on imports of basic products and sensitivity to rising global prices," Maximo Torero said.
According to him, the greatest losses are borne by countries that combine high dependence on food imports, limited budgetary opportunities and already existing economic or climatic problems.
"African countries as a whole are at high risk because they are heavily dependent on imported fertilizers and have limited capacity to offset price shocks," he added.
For example, Sudan receives up to 54% of fertilizers through shipments through the Persian Gulf, and with ongoing conflict and limited supplies, there is a high risk of a food crisis in the country. Significant dependence on imports of nitrogen and phosphorus fertilizers is also observed in Somalia (about 30%), Kenya (26%), Tanzania, Mozambique, Nigeria and Ghana. According to UN estimates, further increase in the cost of fertilizers may reduce yields and endanger the food security of tens of millions of people.
Risks are also systemic in Asia, where the main demand for fertilizers is concentrated. India is 40-50% dependent on supplies from the Persian Gulf and is already negotiating urgent purchases with other suppliers. In Pakistan and Bangladesh, some production facilities have been shut down due to gas shortages.
In Latin America, Brazil, which is almost completely dependent on urea imports, was under attack. Disruptions may affect soybean and corn production. Even developed economies — the United States and European countries — record price increases of 30-50%, although their position remains more stable due to internal capacities and alternative logistics.
Julie Kozak, Director of Communications at the IMF, warned that disruptions in the supply of fertilizers, combined with disruption to transport chains, increase the likelihood of a global rise in food prices.
In addition, experts warn of rising oil prices, which could worsen the situation. According to the forecast of Goldman Sachs bank experts, Brent prices may exceed the historical maximum of 2008 — about $147 per barrel — if supply disruptions continue. Saudi Arabia's oil officials predict that the price of oil could exceed $180 per barrel if the conflict does not end soon, the Wall Street Journal reports. Additionally, the situation may be aggravated by the US attempt to implement a naval blockade or even capture the Iranian island of Kharq (the hub through which about 90% of Iranian oil exports pass by sea) in order to force Tehran to "open" the Strait of Hormuz.
At the same time, Iran has already begun to manage the passage through the Strait of Hormuz on its own. According to Lloyd's List, Tehran has organized a "safe sea corridor" in the strait for vessels that receive prior approval and probably pay for passage: at least one tanker, according to their information, paid Tehran about $ 2 million. The procedure is monitored by the Islamic Revolutionary Guard Corps (IRGC), and the ships pass through the territorial waters near Larak Island, where IRGC forces and port services verify their identification.
Several countries are negotiating the terms of passage, including India, Pakistan, Iraq, Malaysia and China. Currently, permits are issued on an individual basis, but the IRGC intends to formalize the process: future vessels will have to provide information about the owner and the final destination.
Izvestia sent a request to the Iranian Embassy with a request to confirm this information.
Russia's role in stabilizing the fertilizer market
It is impossible to fully compensate for the loss of 3-4 million tons per month in the short term. However, a number of countries are able to partially mitigate the effects of the crisis.
Morocco, which controls up to a third of global phosphate exports, can play a significant role. Its supplies go across the Atlantic and do not depend on the current crisis. In the United States, access to cheap natural gas makes it possible to increase the production of nitrogen fertilizers relatively quickly. China, despite its own export restrictions, is theoretically able to increase supplies, while Canada is able to support the market by exporting potash and phosphate fertilizers.
It does not depend on the transport routes through the Strait of Hormuz and Russia. Our country is one of the world's largest exporters of fertilizers with a share of 20-25% in global trade. In addition, it has significant export capacities and stable logistics through the Baltic and the Black Sea, Egyptian Professor of Economics and energy Wafa Ali said in an interview with Izvestia. In his opinion, with proper coordination, Russia can partially compensate for the shortage on the world market and stabilize prices for nitrogen fertilizers. Although the possibilities of increasing Russian exports are limited by the high utilization of production capacities — up to 85-90%, which means that it is impossible to completely replace the lost volumes in the short term.
Nevertheless, Russia can participate in the formation of a new market configuration, where alternative routes and suppliers are beginning to play a key role.
Переведено сервисом «Яндекс Переводчик»
