SunSirs: The Conflict Involving Iran Is Reshaping the Global Fertilizer Market

Consumers are already feeling the impact of rising fossil fuel prices when refueling their cars or buying plane tickets. For farmers, however, the effect is even more direct. The conflict involving Iran is driving up the price of fertilizer—one of the most significant costs in agricultural production.

Fertilizer prices have seen significant volatility throughout the year. On one hand, global trade has been disrupted; on the other, rising natural gas prices have directly increased production costs.

Fertilizer production relies heavily on natural gas—more so than many other industries. Natural gas serves not only as an energy source for production but also as a crucial raw material for manufacturing ammonia, the foundation of nitrogen-based fertilizers. Consequently, as the conflict involving Iran drove up natural gas prices over the past few months, fertilizer prices rose in tandem. At the same time, fertilizer production is a major source of greenhouse gas emissions, accounting for 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 effectively 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 volatility.

In April, the price of urea—one of the world's most widely used 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. Although urea prices have since retreated significantly, their future trajectory remains highly uncertain.

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

Pivot Bio is working to reduce 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 products are now cost-competitive with traditional fertilizers. Since their production process does not require natural gas, 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 for the next three years.

This is particularly significant for farmers, as high fertilizer prices may persist for some time. CoBank, a U.S. agricultural financial institution, projects that high prices for certain fertilizers could last until at least 2028. One reason is that the conflict has already caused long-term losses in production capacity; 31 ammonia production plants in the Middle East have been affected or forced to shut down completely. Meanwhile, approximately 20 ammonia plants 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 problem for 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 may eventually have to pay more for 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 use microbes to supply nitrogen to plants, thereby reducing the need for synthetic nitrogen fertilizers. However, such products cannot yet fully replace traditional fertilizers. Pivot Bio states that, depending on the crop type and growing conditions, its products 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 potential pathway to reducing dependence 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 Technology Review)

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