Big news for farmers! Urea production in India has decreased amid the war in Iran. What will be the impact?

Iran-Israel War: Approximately 80% of urea production in India depends on LNG, and India imports 40-45% of its LNG needs from Qatar. Consequently, the supply shortage is impacting the commodity market.

Iran-Israel War: The tensions in the Middle East caused by the Iran-Israel war are resulting in fertilizer companies in India cutting production. According to media reports, people familiar with the matter, speaking on condition of anonymity, said that some major companies, such as the Indian Farmers Fertilizer Cooperative Limited, are reducing production at their urea plants. A prolonged disruption in the supply of liquefied natural gas (LNG) could force companies to shut down their facilities.

What is the connection between urea and LNG?

LNG is crucial as a raw material in urea production. LNG is used not only as a raw material for urea production but also as a fuel to operate heavy machinery. Following the Iranian attack on Qatar's Ras Laffan plant, a "force majeure" was declared.

"Force majeure" is a legal term that refers to circumstances beyond human control, such as a natural disaster or war. When a company declares "force majeure," it means that it will be unable to fulfill its contracts due to the current circumstances, and will not be penalized for failing to deliver.

What is the cause for concern for India?

India imports 40-45 percent of its LNG needs from Qatar, and approximately 80 percent of urea production in India depends on LNG. This supply shortage is impacting the commodity market, driving up prices and raising major economic concerns.

According to a company notice obtained by Bloomberg, Pakistan's Sui Northern Gas Pipelines Limited has also informed customers that it will be unable to supply regasified LNG to its fertilizer plants due to the fighting in the Middle East. The country receives most of its LNG from Qatar, and the suspension will come into effect at midnight on Wednesday.

A senior official at India's fertilizer ministry, without commenting on the urea cut, said that the geopolitical situation is being closely monitored and there is currently no shortage of gas supply. According to Suresh Kumar Chaudhary, director general of the Fertilizer Association of India, there is sufficient stock to meet demand soon. "We are hopeful that the war will end soon," Chaudhary said in an interview on Tuesday. Without providing further details, he added, "If the war continues, it will be a matter of concern for us."

Another concern is that this crisis in India comes just before the Kharif sowing season. Therefore, if there is a disruption in fertilizer availability, prices will be affected.