For all the attention oil has received in this latest round of geopolitical stress, it was not the only market that moved with urgency. As tensions between Iran and the United States intensified and risks around the Strait of Hormuz escalated, fertiliser benchmarks began adjusting with unusual speed and clarity.
Within days, urea prices at major import hubs rose from roughly US$ 516 to over US$ 680 per tonne. Ammonia climbed from about US$ 495 to US$ 600, while phosphate prices crossed US$ 700. These are not routine fluctuations. They signal a supply disruption that markets believe will persist, not dissipate.
The reason lies in geography. The Strait of Hormuz carries close to a quarter to a third of global fertiliser trade, alongside roughly 20 percent of global LNG flows that underpin nitrogen production. The Gulf region itself accounts for nearly 45 percent of global urea supply.
Disruptions at this chokepoint have already constrained an estimated 22 million tonnes of annual urea exports, with ammonia and phosphate markets facing parallel dislocations. Nearly a million tonnes of cargo remain stranded, caught between contract and delivery.
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Dependence on fertiliser imports
For India, this is not a distant disturbance. It is an immediate constraint on the external sector. More than 60 percent of urea imports and close to 80 percent of ammonia and sulphur imports are sourced from the Gulf.
India remains among the largest global importers of diammonium phosphate and urea, with imports of both rising sharply in recent months as domestic demand strengthens. When supply through this corridor tightens, substitution is limited and adjustment costs rise quickly.
The instinct is to read this as a price story. It is better understood as a timing problem. The disruption has coincided with a narrow global application window, when farmers across major producing regions apply nitrogen to sustain crop cycles.
When input prices rise sharply at this stage, usage adjusts. Application rates are reduced or cropping patterns shift toward less input-intensive alternatives. These decisions are not reversed easily, and their consequences appear with a lag in the form of lower yields.
That lag is what gives the shock its macroeconomic weight. Fertilisers do not enter inflation directly. They enter through food, and with persistence. In India, where food inflation shapes both household expectations and policy responses, this transmission is particularly strong. A surge in input costs today increases the likelihood of elevated food inflation in subsequent quarters, even if current price indices remain contained.
Domestic requirements
At the same time, the balance of payments is already absorbing the first round of the shock. Fertiliser imports are dollar denominated, and the price increase is unfolding alongside firm energy markets. India is projected to require around 17 million tonnes of urea through August 2026.
With existing stocks of about 6.2 million tonnes and expected domestic production of roughly 10 million, a shortfall of close to 2 million tonnes remains. Meeting that gap at current global prices implies a direct increase in dollar outflows.
Currency markets have begun to reflect this shift. The rupee has weakened as expectations of a wider current account deficit take hold. The adjustment mechanism is straightforward. A higher import bill raises demand for foreign exchange, while heightened geopolitical risk tempers capital inflows. The exchange rate moves to absorb that imbalance.
Depreciation then feeds back into costs. A weaker rupee increases the domestic price of imported fertilisers, LNG and related inputs, raising both production costs and the fiscal burden of subsidies. What begins as an external supply disruption evolves into a reinforcing loop linking the current account, the currency and domestic inflation.
The fiscal channel is where the pressure becomes most visible. India’s fertiliser system is designed to shield farmers from global volatility, which implies that higher global prices translate into higher subsidy outlays. With India’s fertiliser import bill projected to rise sharply toward a record US$ 18 billion this fiscal year, the fiscal cost of maintaining stable farm-gate prices is set to increase materially.
This creates a familiar but difficult trade-off. Expanding subsidies stabilises agricultural activity and protects rural demand. At the same time, it compresses fiscal space. Resources are redirected away from capital expenditure toward consumption support. Over time, this reallocation shapes growth outcomes, even if it is unavoidable in the short run.
Domestic production offers limited relief. Fertiliser output in India is closely tied to LNG availability, and supply constraints have already reduced domestic urea production by roughly 800,000 tonnes out of a monthly capacity of about 2.6 million tonnes. Local ammonia production has slowed significantly as input availability tightens. The ability to offset external shocks through domestic supply is therefore constrained in the near term.
Multiple shock sources
Taken together, the shock is not singular. It operates through multiple channels at once. Supply is constrained, prices are rising, the import bill is expanding, the currency is adjusting and fiscal pressures are building. Each of these dynamics reinforces the others, making the overall adjustment more complex than a standard commodity cycle.
For monetary policy, the difficulty lies in the nature of the shock. The inflationary impulse is supply-driven and delayed. Tightening policy does little to address its source, while easing risks allowing second-round effects to take hold. At the same time, exchange rate pressures may require intervention or tighter liquidity conditions. Policy choices become less clean and more contingent.
This episode ultimately exposes the concentration of risk within the global fertiliser system. A single maritime corridor influences a substantial share of supply. When this is disrupted, diversification is not immediately available. Production is geographically concentrated, and logistics cannot be reconfigured quickly.
For India, this raises a broader question about external vulnerability. Energy dependence has long been treated as a strategic concern. Fertiliser dependence operates along similar lines, though with less visibility. Yet its effects are just as far-reaching, feeding into food security, inflation dynamics and fiscal stability.
The immediate response will focus on securing supplies, renegotiating contracts and expanding subsidies. These steps are necessary. But they do not reduce exposure.
A more durable response requires rethinking the structure of dependence itself. This involves diversifying sourcing strategies, building strategic buffers and investing in alternative production pathways. It also requires recognising that agricultural inputs, much like energy, sit at the core of macroeconomic stability.
The disruption in the Gulf is a reminder that the stability of domestic prices and growth is often anchored in systems that lie far beyond national control. When those systems are strained, the effects are neither immediate nor easily contained.
What is unfolding now is not just a spike in fertiliser prices. It is an adjustment across the external sector, which is likely to work its way through the current account, the currency and eventually the inflation trajectory. The question is not whether the shock will pass, but how much of it will persist in the system by the time it does.
Deepanshu Mohan is Professor of Economics and Dean, O.P. Jindal Global University, Sonipat, Haryana. He is currently Visiting Professor, LSE, and an Academic Research Fellow, University of Oxford. Ankur Singh, a Research Analyst with the Centre for New Economics Studies (CNES), O.P. Jindal Global University, Sonipat, Haryana, contributed research for this article. Originally published under Creative Commons by 360info
