By Ashok Gulati and Ritika Juneja, Respectively Distinguished Professor and Research Fellow at ICRIER
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 USD 728 billion, providing a good cushion to absorb external shocks. But the ongoing war in the Gulf between Iran and Israel plus the USA has sparked new vulnerabilities of energy and fertiliser supplies. This calls for strategic thinking and reforms in the fertiliser sector to ensure food security.
The escalating war is threatening 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% of its requirement being met through imports. In financial year 2024-25 (FY25), India imported roughly 243 million tonnes (mt) of crude oil worth $137 billion, nearly half of which is sourced from West Asia 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 Friday. India’s exposure extends to cooking gas as well. The country imports about two-thirds of its liquefied petroleum gas (LPG) (31.3 mt in FY25), much of it moving through the same corridor. As supplies tightened and import costs rose, domestic LPG prices were raised by `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. Disruptions across West Asia pushed Asian spot LNG prices from around $10/metric million British themal unit (mmBtu) to $24-25/mmBtu within two weeks. Invoking the Essential Commodities Act, the government has prioritised gas allocation for households and transport, leaving fertiliser producers with only 70% of their usual six-month consumption. This is likely to adversely hit 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% of these imports come from the Gulf region. Following the escalation in war, global urea prices surged from about $484/tonne to $652/tonne within 10 days—a 35% 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% 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 rises to about 55%.
Dependence is similarly high for other fertiliser inputs. Over 80% of ammonia and sulphur imports come from the Gulf, while around 40% of di-ammonium phosphate imports are sourced from Saudi Arabia. India also relies almost entirely on imports for potassic fertilisers (MOP) and 90-95% 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 68-70% of its requirements (as of FY25), leaving the sector—and India’s food security—highly vulnerable to geopolitical disruptions, price volatility, and supply shocks.
India’s also exports agri-products to West Asia ($11.8 billion in FY25), which are under strain. But the biggest worry is about oil, gas, and fertiliser imports. If this crisis continues beyond a month or so, our fertiliser subsidy bill in FY27 is likely to cross Rs 2 lakh crore, against a budgeted figure of Rs 1.7 lakh crore. This calls for an immediate action to reform this sector.
How do we do it? 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 (nitrogen, phosphorus, and potassium), while reducing fiscal pressures. It will plug leakages too, which are substantial (about 20%). 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 recommended nutrient doses issued by state agricultural 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 import of fertilisers and their feedstocks from countries other than the Gulf region; and second, reform the fertiliser sector either through Direct Benefit Transfer and decontrolling prices or put quantitative restrictions 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?