Context:

• The ongoing geopolitical tensions in the Middle East—particularly the conflict involving Iran on one side and Israel and the United States on the other—have exposed India’s vulnerabilities in energy and fertiliser supply chains.
• While India currently holds comfortable foreign exchange reserves (over $728 billion), disruptions in critical maritime chokepoints such as the Strait of Hormuz threaten the supply of oil, gas, and fertilisers.
• These disruptions have serious implications for food security and fiscal stability.

Why the Crisis Matters for India?

• Vulnerability in energy imports:
  • India imports about 88% of its crude oil requirement.
  • In FY 2024–25, India imported 243 million tonnes (Mt) of crude oil worth $137 billion, nearly half sourced from the Gulf via the Strait of Hormuz.
  • Brent crude prices jumped from $66/barrel to $120/barrel during the crisis before stabilising around $100, resulting in rising fuel import bills.
• Vulnerabilities extends to cooking gas as well:
  • The country imports about two-thirds of its LPG (31.3 Mt in FY25), much of which moves through the same corridor.
  • As supplies tightened and import costs rose, domestic LPG prices were raised by Rs 60 per cylinder.
• Disruption in natural gas and LNG supply:
  • India imported about 27 Mt of Liquefied Natural Gas (LNG) in FY25, roughly half of domestic demand. Qatar supplies nearly 50% of India’s LNG imports.
  • Asian spot LNG prices surged from $10/mmBtu to $24–25/mmBtu.
  • Policy response: The government invoked the Essential Commodities Act to prioritise gas allocation for households and transport.
  • Consequences: Fertiliser manufacturers are receiving only 70% of their normal gas allocation, threatening domestic urea production.

Fertiliser Security - A Critical Concern:

• Heavy dependence on urea imports:
  • India consumes about 40 Mt of urea annually. Domestic production stagnates at 30 Mt, forcing imports. Imports may exceed 10 Mt in FY26 (up from 5.6 Mt in FY25).
  • Price shock: Global urea prices rose from $484/tonne to $652/tonne within 10 days (almost 35% increase).
  • Import dependence: Over 60% of urea imports originate from the Persian Gulf region. Natural gas (key feedstock for urea) is 85% imported. Hence, effective urea import dependence comes around 55%.
• Dependence on other fertiliser inputs:
  • India’s fertiliser ecosystem relies heavily on imports.
  • For example, over 80% of India’s Ammonia & Sulphur requirement is imported from the Gulf, DAP (~40% from Saudi Arabia), MOP (Potash, almost entirely imported), phosphatic raw materials (90–95% imported).
  • Overall, India depends on global supply chains for 68–70% of fertiliser needs.

Implications for Food Security and Fiscal Stability:

• Food security risks: Fertilisers are critical for agricultural productivity and crop yields. Supply disruptions can directly affect food production and prices.
• Fiscal pressure: Fertiliser subsidy could exceed ₹2 lakh crore in FY27, compared with the budgeted ₹1.7 lakh crore.
• Trade impact: India exports $11.8 billion worth of agricultural products to Middle Eastern markets, which could also face disruptions.

Key Structural Challenges and Way Forward:

• High import dependence: For fertiliser inputs and feedstocks.
  • Invest: In overseas fertiliser mineral assets. Establish a $1 billion fertiliser investment fund to enable Indian firms to acquire stakes in global mining projects.
• Geopolitical risks: Expand/diversify sourcing from Africa, Central Asia, and Latin America.
• Distorted fertiliser pricing system: Particularly heavily subsidised urea.
  • Reform fertiliser subsidy mechanism: Shift to Direct Benefit Transfer (DBT) of fertiliser subsidies directly to farmers. Gradually deregulate fertiliser prices.
  • If full subsidy reform is difficult, introduce quantitative restrictions based on farm size, cropping patterns, and recommended nutrient doses by agricultural universities.
  • Implementation can leverage the government's AgriStack digital infrastructure.
• Inefficient nutrient use: Skewed towards nitrogen (N) over phosphorus (P) and potassium (K). Subsidy leakages are also estimated at about 20%.
  • Encourage: Balanced nutrient usage (N, P, K), and reduce fiscal burden and subsidy leakages.
  • Expand Nutrient-Based Subsidy (NBS) framework: Extend NBS Scheme (currently applied to phosphatic and potassic fertilisers) to urea. Align fertiliser prices and encourage balanced fertiliser application.

Conclusion:

• Though the ongoing geopolitical crisis in the Middle East highlights India’s strategic vulnerability, crises can also catalyse reform.
• By reforming the sector, India can transform this moment of disruption into an opportunity for long-term fertiliser security and sustainable agriculture.
• Decisive policy action now could shield India’s food system from future geopolitical shocks.