Market Insight | Week 10
As the situation in the Middle East unfolds, with ongoing hostilities and energy markets dominating the headlines, the ripple effects of this major disruption are spreading to other segments as well, including dry bulk, with fertilizer trade being one of the most affected dry bulk commodities.
QatarEnergy announced last week that its facility in Ras Laffan has ceased production of sulphur, ammonia, and urea following its decision to halt LNG output after a drone attack, withdrawing a major source of fertilizer supply from the global market. Indicatively, in 2025 QatarEnergy alone exported 5.4 m tons of urea, representing about 10% of global exports. Meanwhile, Iran has taken its domestic ammonia capacity offline, while other regional producers are considering output reductions due to Hormuz closure.
The market reacted sharply to these developments, driving fertilizer prices significantly higher, as the Middle East and the Persian Gulf serve as a critical hub for fertilizer trade. Significant seaborne volumes of fertilizers transit Hormuz Straits, around 25% of global seaborne nitrogen exports, 45% of sulphur and approximately 10% of phosphorus exports. The main exporters in the region are Saudi Arabia, the UAE, and Qatar, shipping primarily sulphur, ammonia, and urea, with major export destinations including India, West Africa, and Southeast Asia.
A significant factor shaping the fertilizer market is natural gas, as it serves both as the primary feedstock and as the main energy source in the production process. Natural gas typically represents 60–70% of nitrogen fertilizer variable costs, making production highly sensitive to gas price fluctuations. Any surge in prices immediately raises production costs and may force plants to reduce output or temporarily shut down. The halt of Qatari natural gas output and the subsequent surge in benchmark prices forced Subcontinent countries, heavily reliant on Qatari LNG, to scale back fertilizer production following the suspension of gas flows. In India, fertilizer production fell as multiple producers reduced output, whereas in Bangladesh, operations at five of the six main urea plants came to a halt.
As the fertilizer market is mainly linked to grain production, the current disruption comes at a critical time, coinciding with the Northern Hemisphere’s spring planting season, the annual peak in global nitrogen fertilizer demand. Higher fertilizer prices, shipment delays, and rising freight costs, further compounded by surging bunker prices, are likely to force farmers either to reduce nutrient application or absorb higher input costs. Unlike oil, fertilizers lack meaningful strategic reserves, leaving agricultural markets vulnerable to supply shortages, as even modest reductions in fertilizer use can depress yields of staple crops such as corn, wheat, and rice.
For the global economy, the effects of disruptions in fertilizer trade are likely to materialize with a 6-9 month lag through weaker crop yields. This could result in higher food inflation, tighter grain stocks, and elevated food security risks for import-dependent countries, while also generating wider macroeconomic price pressures.
For shipping, the short-term impact on dry bulk demand is likely to remain limited, as fertilizers account for approximately 4% of global dry bulk trade and concentrated to smaller and mid-sized vessel classes (Handysize, Supramax, and Ultramax) which dominate fertilizer seaborne transportation. However, weaker grain output due to reduced crop nutrient use could soften dry bulk demand later in 2026, as smaller harvests would impact seaborne cargo volumes.
In conclusion, the escalating war in the Middle East and rising strains at a critical maritime chokepoint once again highlight the interconnectedness of commodity markets and their sensitivity to geopolitical headwinds.