Fertiliser production to dip 10-15% if Middle East issues persist: Crisil Ratings

Middle East Tensions Threaten India's Fertiliser Supply Chain

India's fertiliser industry faces a precarious future as escalating issues in the Middle East risk disrupting key raw material supplies, according to a stark warning from Crisil Ratings. The agency predicts a potential drop in domestic production by 10-15% if these geopolitical challenges persist. This comes at a time when farmers are already grappling with high input costs and volatile global markets. Natural gas, a critical feedstock for producing urea and other nitrogen-based fertilisers, flows heavily through the Strait of Hormuz, a chokepoint vulnerable to conflict. Any blockade or escalation could choke off supplies, forcing Indian manufacturers to scramble for alternatives at exorbitant prices. The ripple effects would hit hard, given India's heavy reliance on imported energy for its sprawling fertiliser plants.

The Middle East supplies a significant portion of the liquefied natural gas (LNG) that powers India's fertiliser production. With domestic gas output insufficient to meet demand, imports have become the lifeline. Recent flare-ups, including conflicts involving Iran, have already pushed shipping insurance costs higher and rerouted tankers, delaying deliveries. Crisil analysts highlight that prolonged disruptions could lead to plant shutdowns, curtailing output just as the planting season ramps up. This scenario echoes past crises, like the 2022 Russia-Ukraine war, which spiked global fertiliser prices and strained food security worldwide.

Impact on Farmers and Crop Yields Looms Large

For Indian farmers, the news spells trouble on multiple fronts. A dip in fertiliser availability would mean higher costs or reduced application, directly threatening crop yields. Key staples like rice, wheat, and pulses could suffer, exacerbating food inflation in a country where agriculture employs nearly half the workforce. Crisil notes that complex fertilisers, including diammonium phosphate (DAP) and NPK blends, are already seeing slowed growth due to import curbs from China. Volumes for these products are projected to rise only 2-4% this fiscal year, down from a robust 9% previously, thanks to a high base and supply bottlenecks. Farmers have shifted to NPK alternatives amid DAP shortages, but even that substitution has limits if overall production falters.

"If Middle East tensions continue, we could see fertiliser production fall by 10-15%, hitting domestic output hard and forcing reliance on costlier imports, which farmers can ill afford amid already elevated prices," said a senior analyst at Crisil Ratings.

Global trends paint a similarly grim picture. Fertiliser prices are surging ahead of the 2026 planting season, with urea hitting shocking highs around $980 per ton in some markets. North American farmers are delaying purchases due to affordability crises, and similar pressures are building in India. High nitrogen oversupply from China undercuts prices but floods markets unevenly, while phosphate demand remains subdued as growers cut back on applications to save money.

Industry Braces for Broader Economic Fallout

The fertiliser sector's woes extend beyond the farm gate, potentially dragging on India's economic growth. Companies in the space could face margin squeezes from pricier raw materials, leading to subdued credit ratings and tighter financing. Limited new production capacity globally until 2027 means little relief in sight, with Fitch Ratings even raising short-term price assumptions. In India, the shift toward NPK fertilisers—now comprising over 60% of complex fertiliser volumes—offers some buffer, as domestic plants can pivot production. Yet, sustained Middle East issues could overwhelm these adaptations, pushing up food prices and straining government subsidies, which already ballooned during past disruptions.

Experts urge diversification of import sources and investments in domestic gas exploration to build resilience. Meanwhile, precision farming techniques and balanced nutrient use are gaining traction to stretch limited supplies. Governments worldwide are prioritizing fertiliser allocations to safeguard food security, but the path forward remains fraught. As 2026 unfolds, the fertiliser market's trajectory will hinge on de-escalation in the region and adaptive strategies from producers and policymakers alike.

In summary, Crisil Ratings' alert underscores the vulnerability of India's fertiliser production to Middle East volatility, with a possible 10-15% output cut looming. This could curb crop yields, inflate costs for farmers, and ripple through the economy, calling for urgent measures to mitigate risks.