There is a famous saying, “never let a serious crisis go to waste”. India’s landmark economic reforms in 1991 were the result of a balance-of-payments crisis. And today the country sits on comfortable foreign exchange reserves of over $728 billion, providing a good cushion to absorb external shocks. But the ongoing war in the Gulf between Iran on one side and Israel and the US on the other has exposed the vulnerabilities of energy and fertiliser supplies. The situation calls for strategic thinking and reforms in the fertiliser sector to ensure food security.
The escalating war is threatening a major disruption in energy and fertiliser supplies. The risks extend to vital maritime chokepoints such as the Strait of Hormuz, through which a substantial share of global oil and gas trade passes. Any disruption in this corridor quickly ripples across commodity markets. Oil and gas, and by extension fertilisers, especially urea, have already felt the tremors.
For India, crude oil is the largest import item, with about 88 per cent of its requirement being met through imports. In the financial year 2024–25 (FY25), India imported approximately 243 million tonnes (Mt) of crude oil worth $137 billion, nearly half of which was sourced from the Middle East via the Strait of Hormuz. Just before tensions escalated in late February, Brent crude averaged $66 per barrel, but within two weeks, prices spiked to around $120 per barrel before settling near $100 on March 13. India’s exposure 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.
India’s Liquefied Natural Gas (LNG) imports have also been hit. In FY25 , the country imported about 27 Mt of LNG — roughly half of its requirement — worth around $15 billion, with Qatar accounting for nearly half of these imports. The disruptions across the Middle East pushed Asian spot LNG prices from around $10/mmBtu to $24-25/mmBtu within two weeks. By invoking the Essential Commodities Act, the government has prioritised gas allocation for households and transport, leaving fertiliser producers with only 70 per cent of their usual six-month consumption. This is likely to adversely hit the domestic production of urea.
This matters because India’s food security hinges heavily on fertiliser security, and urea production is closely tied to global energy markets. India consumes about 40 Mt of urea annually, but domestic output has stagnated at around 30 Mt, forcing rising imports that could exceed 10 Mt in FY26, nearly double the 5.6 Mt imported in FY25. Over 60 per cent of these imports come from the Persian Gulf region. Following the escalation in the war, global urea prices surged from about $484/tonne to $652/tonne within 10 days — a 35 per cent jump — and may rise further as uncertainty persists. The dependence runs deeper: Natural gas, the key feedstock for urea, is largely imported, supplying about 85 per cent of the gas used in domestic production. Once both direct urea imports and imported gas feedstock are considered, India’s effective import dependence in urea goes up to about 55 per cent.
Dependence is similarly high for other fertiliser inputs. Over 80 per cent of ammonia and sulphur imports come from the Gulf, while around 40 per cent of DAP imports are sourced from Saudi Arabia. India also relies almost entirely on imports for potassic fertilisers (MOP) and about 90-95 per cent for phosphatic raw materials (rock and acid). Once the import content of intermediates and feedstocks is considered, India depends on global fertiliser supply chains for about 68-70 per cent of its requirements in FY25, leaving the sector — and India’s food security — highly vulnerable to geopolitical disruptions, price volatility, and supply shocks.
India also exports agri-products to the Middle East ($11.8 billion in FY25), which are under strain. But the biggest worry is about imports of oil, gas, and fertilisers. If this crisis continues beyond a month or so, the country’s fertiliser subsidy bill in FY27 could cross Rs 2 lakh crore, against a budgeted figure of Rs 1.7 lakh crore. This calls for immediate reforms in this sector.
How do we do that? First, India must diversify its imports beyond the Gulf countries. Complementing this, India should expand overseas investments in fertiliser minerals and production assets while accelerating domestic exploration of fertiliser resources. Establishing a dedicated fertiliser investment fund of say, $1 billion, could enable Indian companies to acquire equity stakes in global mining projects and finance domestic exploration, shifting India from reactive import dependence to investment-led supply security.
Second, policy reforms in fertiliser pricing and subsidies are essential and overdue. Direct transfer of fertiliser subsidies to farmers and gradual deregulation of macro-nutrient prices would encourage balanced fertiliser use of N, P and K, while reducing fiscal pressures. It will plug leakages as well— at about 20 per cent, they are quite substantial. If such reforms appear too ambitious in the short run, an alternative would be to put quantitative restrictions on sales based on farm size, cropping patterns, and nutrient doses recommended by state agriculture universities. With the government already developing AgriStack, implementing such targeted allocation mechanisms seems feasible.
Third, if this is also not possible, then at least bring urea under the Nutrient-Based Subsidy (NBS) framework, aligning its price with other fertilisers (P and K) and promoting more balanced nutrient application.
In essence, policymakers need to work on two fronts: First, diversify fertiliser imports and their feedstocks by involving countries other than those from the Gulf region. Second, reform the fertiliser sector either through DBT and decontrolling prices, or put quantitative restrictions in place, or bring urea under the NBS scheme. If Prime Minister Narendra Modi can convert this crisis into an opportunity to reform the fertiliser sector, it will bring rich rewards. But will he bite the bullet?
Gulati is distinguished professor at ICRIER and Juneja is research fellow at ICRIER. Views are personal
