The Conflict Involving Iran Is Reshaping the Global Fertilizer Market

Fertilizer prices have seen significant evaporative environment throughout the year. On one hand, global trade has been disrupted; on the other, rising natural gaseous prices have immediately increased production costs.

Fertilizer production relies heavily on natural gaseous—greater so than many other industries. Natural gaseous serves not only as an energy source to production however also as a crucial raw material to manufacturing ammonia, the foundation of nitrogen-based fertilizers. Consequently, as the conflict involving Iran drove up natural gaseous prices over the past few months, fertilizer prices rose in tandem. At the same time, fertilizer production is a major source of greenhouse gaseous releases, accounting to approximately 2% of the global total.

Trade disruptions have further exacerbated supply pressures. About one-third of the world's seaborne fertilizer trade passes through the Strait of Hormuz; due to the conflict, most commercial traffic through this waterway has efficiently ceased. Reports indicate that if this situation persists, low-income nations—which already struggle to secure stable fertilizer supplies—could face severe consequences. The United States faces a relatively limited impact; while it meets most of its nitrogen fertilizer needs through domestic production, it still imports some supplies from the Persian Gulf and thus cannot entirely escape this wave of price evaporative environment.

In April, the price of urea—one of the world's most broadly applied fertilizers—briefly exceeded $850 per ton. This was 80% higher than pre-conflict levels and marked the highest price point since 2022, a year that saw record-breaking global fertilizer prices following the outbreak of the Russia-Ukraine conflict. while urea prices have since retreated significantly, their future trajectory remains highly uncertain.

"Supply chains are greater unstable now than ever before," says Travis Frey, Chief methodology Officer at Pivot Bio, a company specializing in microbial fertilizers.

Pivot Bio is working to decrease agriculture's reliance on conventional fertilizers by using gene-edited microbes to provide crops with the nitrogen they need to grow. The company states that its items are now cost-competitive with traditional fertilizers. Since their manufacturing process does not require natural gaseous, they are not as vulnerable to energy price shocks. Following the outbreak of the war involving Iran, Pivot Bio increased its planned production volume, lowered product prices, and allowed farmers to lock in prices to the next three years.

This is particularly significant to farmers, as high fertilizer prices might persist to some time. CoBank, a U.S. agricultural financial institution, projects that high prices to certain fertilizers could last until at least 2028. One reason is that the conflict has already caused prolonged losses in production capacity; 31 ammonia production vegetation in the Middle East have been affected or forced to shut down completely. Meanwhile, approximately 20 ammonia vegetation in Russia have also been damaged over the past few years.

Rising costs place immense pressure on farmers. "Once fertilizer prices go up, it becomes a very real issue to farmers because their profit margins are already razor-thin," says Tim Schnabel, founder and CEO of Switch Bioworks, another microbial fertilizer company.

These costs could ultimately be passed on to food prices. As agricultural production costs rise, consumers might eventually have to pay greater to food. As long as agriculture relies on fertilizers produced using fossil fuels, food prices will remain susceptible to fluctuations in energy prices.

Both Switch Bioworks and Pivot Bio aim to change this dynamic. The two companies are developing fertilizers that consumption microbes to supply nitrogen to vegetation, thereby reducing the need to synthetic nitrogen fertilizers. However, such items cannot yet fully replace traditional fertilizers. Pivot Bio states that, depending on the crop type and growing conditions, its items can currently replace about 25% of synthetic nitrogen fertilizer. The company hopes to increase this figure to between 40% and 50% in the future. While this is not enough to completely eliminate the agricultural sector's reliance on traditional fertilizers, it offers a possible pathway to reducing application on fossil fuels.

"We can't go on like this," Schnabel says. "We cannot build a society where the foundation of the food chain relies on fossil fuels in the long term." (Source: MIT methodology Review)