The Geopolitical Squeeze on Australian Agriculture
Australian farmers are currently facing a “double blow” driven by conflict in the Middle East. The US-Israel war on Iran has created a volatile environment where skyrocketing diesel prices are colliding with a severe surge in fertiliser costs.
At the heart of this crisis is the strait of Hormuz. This critical waterway has been essentially shut since US and Israeli attacks on Iran in February, disrupting the flow of essential commodities that sustain global food production.
While oil and liquefied natural gas (LNG) are the most talked-about exports, the impact on fertilisers is even more acute. Approximately 43% of the world’s urea—the most common fertiliser used by growers—and 44% of the sulphur used for phosphate fertilisers typically pass through this narrow strait.
Why Urea is the Breaking Point
Among all inputs, synthetic urea has seen the most dramatic price swings. This is largely due to the region’s dominance in production; Qatar, utilizing cheap gas, is a primary global source. However, Iranian missile strikes on a major Qatari facility in March knocked out significant sources of LNG and urea.
For Australia, the vulnerability is systemic. Between 2019 and 2023, the nation imported nearly 90% of its nitrogen fertilisers, 70% of its phosphate needs, and 100% of its potash-based products.
With over 60% of urea imports coming from the Middle East, the financial impact has been immediate. In Australian dollar terms, the price of Middle Eastern urea has nearly doubled since the start of the year and has risen roughly 75% since the onset of the Iran war.
This reliance is exacerbated by a lack of domestic production. Australia has not produced its own urea since December 2022, following the closure of the Incitec Pivot plant at Gibson Island in Brisbane.
The Ripple Effect: From Field to Supermarket
The financial strain on producers is immense. According to analysis by CBA, fuel, fertiliser, and road transport now account for about 14% of total agricultural costs. Specifically, diesel (6% of costs) and fertiliser (5% of costs) are currently 79% and 67% higher than their five-year averages, respectively.
This cost surge could potentially slash one-third of the agricultural sector’s income. Unlike other crises, farmers aren’t seeing a corresponding rise in crop prices. Due to the fact that wheat and barley prices are set on a global market—and northern hemisphere crops have been less affected by the war—Australian growers must either absorb these costs or reduce their inputs.
Potential Impact on Crop Yields
The decisions made during the planting season will dictate harvest sizes. CBA estimates suggest two primary scenarios:
- Worst-Case Scenario: A 45% reduction in fertiliser use could lead to a 25% drop in wheat production and a decline of more than 30% for barley and canola.
- Moderate Scenario: A 15% drop in fertiliser use could reduce yields by 9% for wheat, 17% for barley, and 10% for canola.
If supply disruptions persist beyond June, the most acute price increases for grains are projected to hit toward the end of the year and into the following year, meaning the effects of the conflict will linger long after the strait of Hormuz potentially reopens.
Pathways to Resilience and Self-Sufficiency
In the short term, the Australian government has sought emergency measures. Prime Minister Anthony Albanese has secured guarantees for extra fuel and 250,000 tonnes of Indonesian urea, which covers roughly one-fifth of the remaining fertiliser needs for the current cropping season.
However, the long-term trend is moving toward domestic sovereignty. By mid-2027, Incitec Pivot is expected to open the Perdaman urea project in Karratha, Western Australia. This facility is projected to produce 90% of the country’s urea requirements, drastically reducing vulnerability to Middle Eastern geopolitical shocks.
Despite these challenges, food security remains stable. As noted by agricultural economists, Australia exports significantly more food than it consumes, ensuring that while prices may fluctuate at the supermarket, the domestic food supply remains secure.
For more on how global conflicts impact local food chains, read our analysis on global food security trends.
Frequently Asked Questions
Why is the strait of Hormuz so important for fertiliser?
The strait is a primary transit point for urea (43% of global supply) and sulphur (44% of global supply), both of which are essential for producing the synthetic fertilisers Australian farmers rely on.
Will bread and food prices increase?
Yes, soaring fuel and transport costs are expected to feed through to higher supermarket prices. However, the impact on crop yields depends on whether farmers can access and afford fertiliser.
Is Australia completely dependent on imported fertiliser?
Australia is highly dependent, importing 100% of its potash, nearly 90% of its nitrogen, and about 70% of its phosphate fertilisers.
When will Australia develop into more self-sufficient in urea?
The Perdaman urea project in Western Australia is scheduled to open in mid-2027, which is expected to meet 90% of the nation’s urea needs.
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