AhlulBayt News Agency (ABNA): When the lowest bid in India's tender for purchasing urea in August dropped to $390 per ton, while importers had paid $959 per ton in April, the fertilizer market appeared to have weathered the shock of disrupted shipping through the Strait of Hormuz. But price stability does not tell the whole story.
According to a report by Al Jazeera, behind the price declines following the peak of the disruption lies a sharp decrease in the volume of shipments of oil, gas, fertilizer, and petrochemical products compared to normal levels. This very discrepancy is the focus of a report by the International Trade Centre, which Nadim al-Mallah addressed on Al Jazeera's economic program, demonstrating that the dollar value of trade can obscure real commodity shortages when prices rise and the actual volume of goods declines.
In this broader picture, the urea crisis is not separate from the oil crisis. Rather, it is the clearest example of the transmission of the consequences of a disruption in a sea route from ships to farms and then to the cost of food production.
The Crisis Is Not Only About Oil
The world typically views the Strait of Hormuz as an energy chokepoint, but this sea route also connects markets that depend on fertilizer and industrial materials.
According to this study, approximately 33.3 percent of global urea trade passes through this route. In addition, shipments of methanol, ammonia, aluminum, and other materials used in extensive production and industrial chains also pass through this route.
The study examined 12 strategic commodities exported by seven economies dependent on the Strait of Hormuz and concluded that the volume of exports of these commodities decreased by an average of 54 percent over the course of one year.
The deliberate focus of this study on the volume of goods, rather than the financial value of trade, is important for understanding the true dimensions of the shock. When disruptions prevent goods from reaching their destinations, price increases may maintain or only slightly reduce the apparent value of exports. But the market does not operate solely on financial value; a factory needs a ton of raw material, and a farmer needs a bag of fertilizer at the right time, not merely a high figure in trade statistics.
The sharpest decline was in liquefied natural gas exports, which fell by 95 percent. Urea followed with an 83 percent decrease, methanol with 80 percent, and ammonia with 75 percent.
Among the commodities examined, polypropylene polymer was the least affected, with its exports declining by 24 percent.
The Numbers Are Large, but the Real Effect Is Greater in Commodity Volumes
These percentages translate into a real gap in supply.
In April, compared to the same month the previous year, crude oil exports through this route decreased by approximately 205 million barrels. Refined petroleum product exports also fell by about 7.3 million tons, and liquefied natural gas exports declined by about 5.5 million tons.
A comparison of the situations in Japan and Thailand shows that the severity of the damage depends not only on geographic location but also on how quickly countries move toward alternative options.
Japan, which traditionally sources about 91 percent of its oil imports from the Middle East, saw a 64 percent decline in its crude oil imports in April.
In contrast, according to data from the International Trade Centre, Thailand increased its imports from suppliers not dependent on the Strait of Hormuz by 62 percent to mitigate the impact of the disruption.
However, alternative options were not a complete solution. Suppliers outside the region increased their shipments for 10 of the 12 commodities examined, but their capacity was insufficient to compensate for the broad supply gap.
The most compensation occurred for ammonia and polypropylene, while the supply gap for other commodities, including gas and urea, remained significant.
Why Is Urea a Window into Understanding the Crisis?
Urea is an essential nitrogenous fertilizer for increasing the productivity of many agricultural crops. Therefore, a reduction in its shipments does not only affect trading companies or ports, but can also increase the cost of agricultural inputs for farmers in importing countries, especially when supply problems coincide with the planting season.
This is where a paradox emerges that makes urea the clearest example in the Strait of Hormuz story: shipment volumes have dropped sharply, yet prices have continued to fall.
India, the world's largest importer of urea, paid $959 per ton in April. That figure dropped to $449 in June, and then the lowest bid in the August tender reached $390 per ton, a figure even lower than pre-Russia-Ukraine war prices.
But this decline does not necessarily indicate a return to normal supply.
The report attributes this price drop to the fact that farmers in the Northern Hemisphere had already secured their needs for the agricultural season in advance, which reduced immediate demand in the market.
In other words, the price decline may indicate a postponement of fertilizer needs rather than a resolution of the access problem.
This makes the interpretation of a "deferred crisis" more accurate than declaring an end to the crisis. If disruptions continue or alternative capacities do not increase before the next agricultural season, the supply gap could reemerge with the return of demand.
From Shipping Disruption to Trade Restrictions
The problem is not limited to access to shipments or their prices. In periods when concerns about domestic markets increase, producing countries typically restrict exports or make them conditional on obtaining permits to protect domestic supply.
But such behavior transfers the shock from the sea to international markets and makes it more difficult for importing countries to access their needs.
According to what is mentioned in this report, citing the World Trade Organization, export restrictions and permits could affect up to 15 percent of global fertilizer trade.
This figure represents the maximum amount of potential trade that may be affected, not the definitive amount of damage. Nevertheless, its economic message is clear: the more the movement of goods through the Strait of Hormuz decreases and trade restrictions in other countries increase, the fewer options importers will have and the higher their costs will be.
This crisis does not mean that the world is immediately facing a food shortage, nor is every price drop in the fertilizer market a negative sign. But this situation reveals the vulnerability of supply chains dependent on a single route and demonstrates that relying on price alone can be misleading.
The issue is not just about the barrels of oil that did not pass through the strait. The issue can be a ton of gas that did not reach a factory, a shipment of urea that did not arrive in time for the planting season, or an importing country forced to compete with other nations for access to alternative suppliers.
From this perspective, urea is more than just a commodity on a list of affected items. Urea is a link that shows how a maritime disruption from a distant location can, with delay, reach the farmer.
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