What Happened
- India's fertiliser companies have raised alarms over a potential gas crunch following escalating West Asia tensions after US-Israel strikes on Iran
- The country currently holds approximately two months of buffer stocks of urea and di-ammonium phosphate (DAP), according to industry estimates
- Industry executives warned that any prolonged disruption in natural gas availability could force a suspension in local urea manufacturing
- Gulf-linked LNG prices are projected to rise 15-20% as a result of the conflict, directly inflating domestic fertiliser production costs
- India's fertiliser imports escalated by 50% in April-December FY2025-26, with urea imports up 83% and DAP up 40%, increasing vulnerability to supply-side shocks
- The Strait of Hormuz, through which a significant share of global fertiliser trade transits, faces potential blockade risks
Static Topic Bridges
India's Natural Gas Dependency in Urea Production
Urea is India's most consumed nitrogenous fertiliser, accounting for about 60% of total fertiliser use. Domestic urea production is almost entirely gas-based — natural gas serves as both the feedstock (to synthesise ammonia) and the energy source for the process. Gas accounts for 70-80% of the total cost of urea production, making the sector extremely sensitive to gas price volatility.
India's daily gas requirement for urea units stands at 46-50 MMSCMD (million metric standard cubic metres per day), but domestic gas allocation covers only 14-17 MMSCMD. The remaining gap is met through imported liquefied natural gas (LNG), primarily from Gulf producers like Qatar and UAE. As a result, imported LNG accounted for up to 63% of gas consumption in India's fertiliser sector in recent years.
- India has 33 large urea manufacturing units with a combined installed capacity of around 30 million tonnes per year
- Natural gas is both feedstock (for ammonia synthesis) and fuel for urea plants
- LNG import dependence creates a direct link between Gulf energy markets and Indian farm input prices
Connection to this news: A disruption in Gulf gas supplies — whether through the Strait of Hormuz chokepoint or sanctions-linked trade restrictions — directly curtails the LNG that Indian urea plants depend on, risking partial or full shutdown of domestic production.
Nutrient-Based Subsidy (NBS) and Fertiliser Subsidy Architecture
India's fertiliser sector operates under two subsidy regimes. Urea is sold at a statutory maximum retail price (MRP) fixed by the government — currently well below the market price — and the gap is reimbursed to manufacturers as a subsidy. For phosphatic and potassic (P&K) fertilisers like DAP, the Nutrient-Based Subsidy (NBS) scheme provides a fixed per-kilogram subsidy announced annually, allowing companies to price above that floor.
The Union Budget 2026-27 projected urea subsidies at approximately ₹1.17 lakh crore, and total fertiliser subsidies (including NBS) at ₹1.71 lakh crore — among the largest line items in the Union budget. When gas prices or import costs rise, the government must either increase subsidy outflows or allow retail prices to rise, with the former being politically more common.
- Urea MRP is fixed and has not been raised in years despite rising production costs
- NBS scheme covers DAP, MOP (muriate of potash), and complex fertilisers
- India imports nearly 100% of its MOP (potash), ~55% of DAP, and ~16% of urea requirements
- Cabinet approved ₹37,952 crore NBS requirement for Rabi 2025-26 season
Connection to this news: Rising LNG prices triggered by the Gulf conflict will inflate urea production costs, widening the gap between cost of production and the fixed MRP — forcing larger government subsidy payouts and putting pressure on fiscal arithmetic.
Strait of Hormuz and India's Food Security Risk
The Strait of Hormuz — a narrow waterway between Oman and Iran — is the world's most critical maritime oil and gas chokepoint, with around 20 million barrels of crude flowing through it daily (roughly 20% of global petroleum liquids). For fertilisers, the strait is equally important: approximately one-third of global fertiliser trade — including urea, DAP, and LNG feedstock — transits this route.
India is the world's second-largest consumer of fertilisers. Any prolonged blockade of the Strait of Hormuz would simultaneously restrict energy supply to domestic urea plants and choke off fertiliser imports at a time when domestic production capacity may also falter.
- India holds strategic petroleum reserves (SPR) at Padur, Mangaluru, and Visakhapatnam with roughly 5.33 million tonnes capacity
- No comparable strategic reserve exists for fertilisers — buffer stocks are commercial, not governmental
- India aims for urea self-sufficiency through revival of five closed fertiliser plants, adding 6.3 MT/year capacity; this would not eliminate LNG import dependence
Connection to this news: The two-month fertiliser buffer described by industry is a short-term cushion — insufficient if the Gulf conflict disrupts both LNG supply (hitting domestic production) and shipping routes (hitting imports) simultaneously.
Key Facts & Data
- India's current fertiliser buffer stocks: ~2 months of urea and DAP (industry estimates, March 2026)
- Urea subsidy budget FY2026-27: ₹1.17 lakh crore (₹1.168 trillion)
- Total fertiliser subsidy projected FY2026-27: ₹1.71 lakh crore
- Natural gas share in urea production cost: 70-80%
- India's daily gas requirement for fertiliser units: 46-50 MMSCMD; domestic supply: 14-17 MMSCMD
- India's fertiliser imports FY2025-26 (Apr-Dec): up 50%, urea up 83%, DAP up 40%
- LNG import price impact from Gulf conflict: estimated 15-20% increase
- India imports ~55% of DAP requirement and 100% of MOP (potash)
- Strait of Hormuz: ~20 million barrels/day crude oil + ~1/3 of global fertiliser trade transits it
- Five closed fertiliser plants targeted for revival: combined capacity addition of 6.3 MT/year