The closure of the Strait of Hormuz is having far-reaching consequences, the full extent of which is only gradually becoming clear. Most worrying is the sharp shortfall in energy flows, compounded by fertiliser shortages, fears of a food crisis and tightening supplies of aluminium and helium.
Yet the disappearance from the market of large volumes of oil, gas, urea and sulphur, all essential for the production of phosphate fertilisers, is only part of the story. Many countries, particularly in Asia, now face the prospect of physical shortages.
The other is the surge in commodity prices.
Russia’s quiet leverage in global supply chains
Although Iran has long been a strategic partner of Russia, the Kremlin is benefiting from the current conflict. Oil and gas exports still account for roughly a quarter of Russia’s revenues. Prices have moved sharply since the war began, with oil rising significantly and gas prices increasing markedly in both Europe and Asia.
The rise in oil prices alone is estimated to add around $150 million a day to the Kremlin’s budget.
However, the issue extends beyond fossil fuels. Russia is exceptionally rich in natural resources and holds a dominant position in global fertiliser markets. The country accounts for around 23 per cent of ammonia exports and 14 per cent of urea, while, together with Belarus, it supplies up to 40 per cent of global potash, according to the Financial Times.
With roughly a fifth of global supplies of commodities such as ammonia, phosphate and sulphur disrupted by the closure of the Strait of Hormuz, Russia has become an even more pivotal player.
The authorities in Moscow appear well aware of this leverage. On Tuesday, exports of ammonium nitrate were temporarily halted in order to prioritise domestic producers. The move may also have served as a signal of Russia’s control over key segments of the market.
Sanctions under strain as demand rises
Prices have responded accordingly. Urea has risen by nearly 50 per cent since the outbreak of the war, with sulphur showing a comparable increase. The impact is being felt most acutely in countries heavily dependent on fertiliser imports. At the same time, higher natural gas prices – the main input for nitrogen fertilisers – are adding further pressure.
According to the Financial Times, the European Union is also beginning to feel the strain. Imports of Belarusian potash remain banned, while tariffs and levies apply to nitrogen fertilisers from Russia and Belarus.
Against that backdrop, Hungary has called for restrictions on fertiliser imports from Russia and Belarus to be eased. Meanwhile, the United States announced last week that it would relax sanctions on several Belarusian producers in an effort to increase supply.
Although Moscow may seek to use its position as leverage in sanctions negotiations, demand for its products remains robust, according to Alexandra Prokopenko, an analyst at the Carnegie Russia Eurasia Center, a US-based thinktank.
‘An official in Asia or Africa who needs urea before the monsoon is not going to resolve the Ukraine issue. He will call the Kremlin, and it will oblige,’ Prokopenko told the British newspaper, adding that Russia can ‘present itself as an irreplaceable supplier’ thanks to the new war.