Gulf war fertilizer crunch: Why it’s good news for China and bad news for India

The theory stems from the importance of the Persian Gulf in the world’s fertilizer trade. Members of the Gulf Cooperation Council, or GCC—particularly Saudi Arabia, Qatar and Oman—are key to supplies of two of the three most important crop nutrients.

They account for about a quarter of the world’s exports of urea, which provides nitrogen to plants and encourages lush, leafy growth. They’re arguably even more important for phosphorus, which stimulates healthy fruit and seeds.

Making phosphorus fertilizers involves stripping sulphur out of petroleum, turning it into sulphuric acid, and then using it to dissolve hard phosphate rock. Roughly a third of this sulphuric ultimately derives from Middle Eastern oil and gas.

That suggests the current disruption is an emergency, but the global trade in crop nutrients is far more diversified than the petroleum business. The European Union exports more fertilizers than the GCC. Canada and Morocco are the dominant players in, respectively, potash and phosphate.

The Ukraine war barely upset Russia’s position as the world’s biggest fertilizer exporter. Fears of starvation in the wake of that invasion turned out to be overblown. Global hunger has actually declined slightly instead of increasing since 2022.

China’s position is worth watching, though. The immense scale of its domestic fertilizer industry makes it a sort of OPEC of fertilizers, producing about 44% of the world’s phosphate, 30% of nitrogen, 23% of sulphur, and 13% of potash. Should it choose to exploit it, this could become a potent geopolitical tool in the coming decades.

To date, China has given scant thought to this. Politicians are far more obsessed with ensuring the industry is large and stable enough to provide domestic farms with a steady supply of affordable nutrients. Its production is so vast, however, that it’s an essential supplier for a wide range of countries—providing about half of Southeast Asia’s nitrogen imports and a quarter of the total in Brazil and Pakistan.

The current crisis in the Middle East may alert China’s leadership to the fact that fertilizers are critical minerals. Don’t be surprised to see Beijing using nutrients as a leverage point in future conflicts, just as Iran is trying to weaponize oil right now.

India will be most vulnerable. Like China, it has 1.4 billion mouths to feed—but it has shied away from dependence on its richer neighbour for crop inputs, giving China an import share of less than 5%. As a result, it’s over-exposed to the GCC monarchies hit by the current conflict. With the monsoon planting season beginning around May, manufacturers fear they may run short. The government has fast-tracked imports of urea, and asked China for cargoes to make up the shortfall.

Beijing’s response will be instructive. Nitrogen usage on its fields peaked a decade ago and has since fallen to the levels of the early 2000s, but new urea plants are still being built. That’s intended to prop up demand for coal in the chemicals industry as the power grid switches to renewables, and to supply industrial uses such as furniture, building materials and smokestack filters. The result is an excess on the market remarkably similar to the spare capacity the GCC uses to control oil prices.

Geopolitical considerations seem to be creeping into the handling of this surplus. Opening up trade in fertilizers, alongside rare earths, was a key outcome of talks between the Chinese and Indian foreign ministers last August intended to reduce tensions over their contested Himalayan border.

Right now, domestic food security is still the most important consideration for Beijing. Exporters have been asked to halt shipments ahead of the spring planting season, Bloomberg News reported this week. Local urea prices, which have increased almost 40% since the end of February, may also restrain any attempts to reopen trade.

China is fast changing, though, and may grow less anxious about its food security as a result. People with memories of the Great Leap Forward famine, which killed tens of millions in the 1950s, are rapidly dying out. A shrinking population is putting less and less pressure on its agricultural land. A country that was for centuries one of the world’s hungriest is becoming one whose richly productive farms could one day turn it into a major food exporter like the US, Brazil, Canada and Australia.

In that world, China’s fertilizer industry may see itself reborn as a geopolitical bargaining chip. If you think recent panics over Beijing’s control of rare earths were alarming, just wait till the threat of starvation is thrown into the balance. ©Bloomberg

The author is a Bloomberg Opinion columnist covering climate change and energy.