Quick Bites | Critical Vulnerability: Australia’s Fertilizer Supply and Economic Fallout from Middle East Conflict

Australia’s agricultural sector faces a potentially severe supply shock following the escalation of conflict in Iran and the near-total blockade of the Strait of Hormuz. We have heard about oil and natural gas, but what about fertilizer? About 27% of the world’s oil exports, 20% of global liquified natural gas (LNG) exports, and 20%-30% of global fertilizer exports, including urea, ammonia, phosphates, and sulphur pass through the Strait.

With approximately one-third of global seaborne fertilizer trade normally transiting through this critical waterway, the disruption poses immediate threats to our crop production, farm profitability, and ultimately, consumer food prices.

Australia’s Fertilizer Import Profile

Australia’s dependence on imported fertilizer is substantial and growing. In 2024, the nation consumed 8.7 million tonnes of fertilizer valued at A$5.5 billion, with imports accounting for 7.9 m tonnes—an increase of 38% on 2023. Yet domestic production has declined sharply to just 1.3 m tonnes, being only 15% of total consumption. This heavy import reliance leaves Australia vulnerable to global supply chain disruptions.

The three dominant fertilizer types in Australia’s market are urea (44% of consumption), monoammonium phosphate (18%), and potassium chloride (6.8%). In value terms, urea imports alone exceeded A$1.5 billion in 2024.

Primary Suppliers and Geographic Risk

Australia’s fertilizer imports are heavily concentrated among Middle Eastern producers. Saudi Arabia, the United Arab Emirates, and Qatar supplied a combined A$1.1 billion worth of fertilizer in 2024, standing for 42% of total import value. Critically, more than half of Australia’s urea imports originate from the UAE, Qatar, and Saudi Arabia—countries directly affected by the Strait of Hormuz blockade.

Australia’s total fertilizer imports were valued at A$3.63 billion during 2025, reflecting the market’s continued expansion. The concentration of supply sources among Persian Gulf producers and the vulnerability of shipping routes creates what economists describe as a critical “single point of failure” for the global food system.

Impact on Agricultural Sectors

Australia’s agricultural industry relies heavily on imported nitrogen-based fertilizers, which has increased by 14% annually since the early 1990s, driven by increasing arable land and demand for commercial crops such as cereals and canola. The cereal cropping sector—dominated by wheat, barley, and canola production across NSW, WA and Queensland—depends critically on consistent fertilizer supply.

Dairy, sugar, beef cattle, and horticulture sectors are similarly affected, though with varying degrees of nitrogen intensity. Winter crop planting, which is beginning in Australia, requires reliable fertilizer availability precisely when supply has become severely constrained.

Immediate Price Impacts

The fertilizer market has responded dramatically to the Strait of Hormuz closure. Urea prices at the New Orleans import hub surged from $516 to over $680 per metric ton in the first week following the blockade—a 32% increase. Global urea prices have risen approximately 25%, with some markets experiencing even sharper gains.

Urea over past 12 months

Source: Trading Economics

Nearly a million metric tons of fertilizer cargo are physically stranded in the Gulf, with major producers declaring force majeure and a previously overlooked shortage of sulphur—which accounts for 44% of global supply—cascading into phosphate fertilizer production worldwide. This cascading effect threatens not only nitrogen fertilizers but also phosphate-based products essential for Australian agriculture.

Source: International Food Policy Research Institute (IFPRI)

Transmission to Consumer Food Prices and Inflation

The path from fertilizer prices to consumer food inflation is complex but significant. If constraints on fuel and fertiliser continue, costs on perishable goods such as dairy, fruit and vegetables could rise by 40-50%, according to former ACCC chair Allan Fels. However, economists note important qualifications.

In high-income countries like Australia, retail food prices are decided primarily by processing, packaging, and marketing costs rather than farm-gate input prices. In high-income countries such as Australia, commercial agricultural producers are able and willing to absorb increased input costs, at least for a while, and neither fertiliser demand nor farm profitability were substantially affected by the 2021–2022 pandemic fertiliser price surge.

Nevertheless, sustained fertilizer disruptions present material inflationary risks. If the blockade persists through the second quarter of 2026, the fertilizer shortage will begin to affect the spring planting season in the Northern Hemisphere, potentially leading to a much larger price spike in the autumn harvest. For Australia’s export-oriented agricultural sector, lower yields could translate into higher global prices, reducing market competitiveness.

Economic Implications

The conflict has already prompted shipping risk premiums, reduced fertilizer-laden vessel transits, and production shutdowns in India and Bangladesh. For Australian farmers, the timing is particularly challenging, coinciding with winter planting season and when input affordability has already deteriorated due to elevated global prices.

The RBA has indicated it is “too early to say” what inflation implications will emerge. However, the combination of fertilizer supply constraints, elevated fuel costs, and potential yield reductions creates meaningful upside risk to inflation over coming quarters, particularly if the Strait of Hormuz closure extends beyond the near term.

Over the longer term, a prolonged disruption of oil, LNG, and fertilizer exports from the Persian Gulf will lead to further increases in energy and fertilizer prices and cause importers of those products to seek alternative suppliers. For many agricultural producers, already facing high input costs and low commodity prices, operating margins will tighten further, likely affecting planting decisions and input use.