The Pulse | Economy | South Asia

Iran-Israel-US War’s Quiet Shock on India’s Fertilizer Imports

India must redesign its structures of dependence on external sources of fertilizer in the face of the ongoing Gulf war.

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, fertilizer benchmarks began adjusting with unusual speed and clarity. 

Within days, urea prices at major import hubs rose from roughly $516 to over $680 per tonne. Ammonia climbed from about $495 to $600, while phosphate prices crossed $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 fertilizer 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. 

For India, this poses an immediate constraint: more than 60 percent of its urea imports and close to 80 percent of ammonia and sulfur 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. 

Worse, 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. Fertilizers 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.

At the same time, the balance of payments is already absorbing the first round of the shock. Fertilizer 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 fertilizers, 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........

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