As Fertilizer Falls, Famine Will Follow

Ever since the straits closed, it’s been a question of how soon before things get really nasty, and now we’re there.

We’ve got missile and drone attacks that are regularly punching through the defensive envelope on the western side of the Persian Gulf. Kuwait and the United Arab Emirates are clearly, if not out, almost very nearly out of interceptors. And things are getting through into those two countries regularly — attacking strategic things like airports and energy infrastructure.

Today we’re going to talk about the impact that this is going to have on global food supplies, which is pretty, pretty damning.

There’s three types of fertilizer.

Number one is potash. Potash is a potassium-based fertilizer that is primarily mined. Most of that comes from the Canadian province of Saskatchewan — so don’t mess up NAFTA talks — Belarus in the former Soviet Union, and a little bit more from Russia. Those three places are the vast majority of what is produced on the planet. That is, thank God, not affected.

Number two is phosphate. Phosphate is basically fossilized bird poop. The big producers there are a little bit from Saudi Arabia — a bit of a problem — there’s a lot in Morocco, that seems fine at the moment. Peru has some, Florida has some. For the moment, the Saudi part, with just single-digit percentages of global supply, is probably going to be impacted, but not critically, because they can always truck it out to the west. It’s not ideal, but it can be done.

Number three is where the real problem is: nitrogen-based fertilizers. Nitrogen-based fertilizers are, as a rule, a derivative of an oil-based naphtha product or natural gas. And here the big player is Qatar — that little thumb in the middle of the west side of the Persian Gulf.

What they call the South Pars natural gas field is one of the largest in the world, and they produce condensate there, which is kind of a hybrid oil–natural gas product. But as a byproduct they get all the natural gas they could ever use. So the lifting cost for that stuff is negative, and it’s just offshore, so getting it to something to process is very, very easy.

They use this to do liquefied natural gas, of which they provide 10% of the global total. That’s obviously gone. The facility that produces it has already been hit. So even if the war were to end tomorrow, I doubt it would be back online within 6 months.

But today we’re going to talk about what they do with fertilizer.

They use that natural gas in order to make ammonia, and then they convert the ammonia to something called urea. Urea is a natural gas-based fertilizer made out of primarily nitrogen that you can spread in physical form — whether pellets or ground powder or whatever.

And this one facility in Qatar is responsible for about 11% of global urea production. And that is the primary method that people apply nitrogen.

There are other ways. Those other ways are all ammonia-based. And collectively, the Persian Gulf is responsible for between 30 and 35% of global ammonia production.

All of that has now gone to zero.

Now, of the three nutrients, this is the one I am least concerned with in the short term, because it can be derived from either natural gas itself or oil, which can then be refined into something called naphtha. And that naphtha can go on to make nitrogen-based fertilizers.

The problem, of course, is that 20% of global oil is offline because of the Persian Gulf.

So while here in the United States — where we are a net oil exporter, and just have scads of natural gas, and produce pretty much all the nitrogen we need ourselves, and can produce more if the market pushes us in that direction, which it absolutely will from now until the end of my life at this point — most of the rest of the world cannot do that.

So in the short term, because of the United States, we’re probably not going to have massive shortages of nitrogen-based fertilizers. Prices will go up, but we won’t have actual shortages.

But if you fast forward 1, 2, 3, 10, 20, 30, 50 years, the rest of the world is going to be in chronic nitrogen deficit pretty much from now on.

That’s before you consider shortages of the other materials that are likely to manifest in the years to come.

So prepare for an environment where food production on a global basis stalls and then crashes — with some areas affected far more than others.

The one that should be at the top of your list for not being able to maintain output is going to be China, because they import pretty much all of the inputs that they need to either make their own fertilizer, or they just import the fertilizer directly.

South Asia — India — also looks like it’s going to be significantly under pressure unless they can find a way to manage access direct to the Persian Gulf themselves, which is a feasible option for them. But it requires them thinking significantly different about their security policy.

But now they absolutely have the impetus to do so.