Strait of Hormuz Risk: 33% Fertiliser Trade at Stake, 50% of India’s Imports Exposed

The Strait of Hormuz (SOH) is one of the world’s most critical trade chokepoints, carrying nearly 20 per cent of global oil and gas (LNG) flows through shipping lanes barely 2 miles wide. Most exports from GCC nations, Saudi Arabia, Iraq, the UAE, Kuwait, and Qatar, depend on this route, with Asia (including India, China, Japan, and South Korea) as the primary destination. Beyond energy, the SOH is equally vital for fertilisers and food supply chains.

War Escalation and Shipping Disruptions
The 2026 Iran war, triggered by U.S.-Israel strikes on February 28, has sharply escalated tensions. Iran’s retaliation and its tightening grip over the SOH have disrupted commercial shipping. Access is increasingly restricted, with selective passage reportedly allowed at higher costs, while insurance premiums and logistical risks have surged.

Fertiliser Trade: The Hidden Shock
While oil dominates headlines, fertilisers face a quieter but significant disruption. Around 33 per cent of global seaborne fertiliser trade — including urea, ammonia, and sulphur — moves through the SOH. GCC producers rely heavily on this route, making supply chains vulnerable to delays, cost spikes, and shortages.

India’s Import Dependence
India remains structurally dependent on fertiliser imports. About 25 per cent of its total consumption is imported, and nearly 50 per cent of these imports come via the Gulf through the SOH. In 2025, India imported around 22 MT, including ~11 MT from Gulf countries and ~6.5 MT from Russia, now its largest single supplier.

Although India is diversifying sourcing to Russia, Belarus, Morocco, and others, these alternatives come with higher costs and longer lead times. China, despite being a large producer, faces export constraints due to strong domestic demand.

Demand-Supply Imbalance Risk
India consumed about 72 MT of fertilisers in 2025, compared to China’s 77 MT. However, China’s production (~153 MT) far exceeds India’s (~52 MT), making India more vulnerable to global disruptions. Good monsoons have further increased fertiliser demand, adding pressure to already tight supply chains.

Short-Term Cushion, Long-Term Risk
As of early March 2026, India held relatively comfortable stocks of urea, DAP, and NPK, offering a buffer until the Kharif season. The government has moved early with tenders and diversification. However, the approach remains reactive, and sustained disruption could expose deeper vulnerabilities.

Macro Risks for India
A prolonged SOH disruption could trigger multiple economic pressures:

• Rupee depreciation (higher USDINR)
• Rising fertiliser and energy prices
• Higher import bill and inflation
• Increased subsidy burden and fiscal stress

This could delay rate cuts by the RBI or even force tightening if global conditions worsen. Higher bond yields may raise borrowing costs, impacting sectors like Real Estate and automobiles.

Impact on Economy and Sectors
Fertiliser shortages and rising costs could affect agricultural output, pushing food inflation higher. Rural demand may weaken, impacting tractors, two-wheelers, FMCG, and microfinance.

Downstream sectors such as chemicals, resins, and plywood may face cost pressures. LPG-linked segments and QSRs could see margin stress, while gig economy workers may also feel indirect effects.

Fertiliser Stocks: Short-Term Winners?
Domestic fertiliser stocks have rallied on expectations of higher realisations and reduced import competition. Chambal Fertilisers, RCF, Deepak Fertilisers, GSFC, and FACT have seen sharp moves.

However, companies dependent on imported inputs, such as Coromandel International, face mixed dynamics. Without adequate subsidy support, rising input costs could compress margins across the sector.

Conclusion: Structural Vulnerability Remains
The SOH disruption highlights India’s continued Reliance on imported fertilisers despite self-sufficiency efforts. While current buffers and diversification offer temporary relief, the broader risk lies in food security and macro stability.

For investors, the opportunity is tactical, not structural. Short-term gains in domestic producers may persist, but risks from subsidy uncertainty, input costs, and rural slowdown remain elevated. The 2026 crisis reinforces how geopolitics can quickly reshape commodity markets and economic outcomes.

Disclaimer: The article is for informational purposes only and not investment advice.