Policy impacts on nitrogen markets

Urea and wider nitrogen fertilizer markets sit at the crossroads of agriculture, energy, trade, and geopolitics. This makes the market unusually sensitive to policy decisions and international events. Unlike some agricultural commodities, nitrogen fertilizers are not priced only by supply and demand in the narrow sense. They are heavily influenced by natural gas economics, shipping routes, sanctions, export controls, tariffs, and government intervention in domestic food systems.

The result is a market that can change direction quickly. A conflict thousands of miles away, a customs rule in a major exporting country, or a subsidy decision in a large importing economy can move prices, redirect trade flows, and alter production decisions almost immediately. In recent years, the clearest examples have come from the war in Ukraine, Chinese export restrictions, US trade measures, and tensions involving Iran and the broader Middle East. Urea prices in 2026 Q1 rose to levels last seen in 2022, with the Middle East conflict at the centre of the disruption, both due to direct loss of supply from the Arab Gulf and indirect production losses in South Asia because of shortages of Qatari gas.

The Iran conflict

The sharpest current example is the conflict in the Middle East and the associated closure of the Strait of Hormuz, a vital transit route for fertilizer, gas, and oil flows. This has affected both supply and demand sides of the market. On the supply side, around 2.4 million tonnes of urea has not left the Middle East in the first couple of months of the conflict, while the interruption to LNG flows has curtailed gas supply into South Asia, raising import requirements in India and Bangladesh by over 1 million tonnes. Indian domestic production is expected to fall to 29 million t/a in 2026, while imports rise to 10 million t/a, the highest level since 2020. Additionally, all Iranian urea plants have been taken offline, following missile strikes on associated power and feedstock infrastructure.

Europe

Europe is another region where policy has become a direct market driver. After the shock of the Russia-Ukraine war in 2022, European nitrogen economics were permanently altered by structurally higher gas prices. CRU now expects West European production to average only 72% operating rates over 2025– 2030, below the 82% average seen in 2019–2021. The reason is simple: Europe remains the highest-cost producer region, with gas and carbon policy keeping costs elevated.

That cost burden is now being reinforced by trade policy. The European Commission introduced import tariffs on fertilizers from Russia and Belarus from July 2025. For urea and related nitrogen products, duties began at €40/t in July 2025–June 2026, rising to €60/t, then €80/t, and eventually €315/t beyond June 2028 if thresholds are exceeded. At the same time, the Carbon Border Adjustment Mechanism adds another layer of cost, with import rising by around $40–60/t now that CBAM has begun to feed through.

This policy package is intended to reduce dependence on Russian imports and support domestic production, but it also raises the delivered cost of fertilizer into Europe. The FCA France price has incorporated a larger premium since late 2025, with the spread versus delivered costs widening by roughly $45–58/t, close to the calculated CBAM cost. In practice, this means policy is not just reshaping sourcing; it is also setting a higher floor for European fertilizer pricing.

The interesting point is that tariffs do not remove the need for imports. Europe still needs large volumes of fertilizer, especially because domestic output remains structurally constrained. So policy may successfully redirect trade away from Russia, but it does not eliminate import dependence. Instead, it shifts volume toward North Africa, Nigeria, and other alternative suppliers.

Russia

Russia is another example of how geopolitics can reshape markets without necessarily removing supply entirely. Russian urea exports rose to 9.7 million t/a in 2025 and are forecast to edge up to 9.8 million t/a in 2026, supported by low costs and capacity growth. But the direction of trade has changed following tariff implementation in Europe; Russian shipments to the EU have fallen sharply, while the US became a more important destination because tariff-free entry kept that market open. The share of Russian exports going to the US rose to 23% in 2025, while Europe’s share dropped to 13%.

Russian facilities have also faced increasing operational interruptions from Ukrainian drone attacks, adding another layer of uncertainty. Even if the net export picture remains robust, such disruptions reinforce the market’s risk premium.

China – export controls

China plays a different role. Rather than being a market constrained by high costs, China is a market managed by policy. Chinese urea production reached 72 million t/a in 2025 and is forecast to rise to 74.8 million t/a in 2026, with exports increasing to 5.9 million tonnes in 2026. However, those exports remain controlled through quota allocation.

That is crucial for the global market. When China releases exports, it can relieve tightness. When it restricts exports, it can tighten the international balance very quickly. In 2025, Chinese exports reached a ten-year high of 5.6 million t/a, helped by quota allocations, but even with that export flow, the government is still managing volumes carefully to protect domestic affordability.

For the international market, China functions as both a pressure valve and a policy risk. If domestic prices are low and inventories are high, export availability can rise. But the government remains willing to intervene if it wants to shield local farmers from global volatility. That makes Chinese policy one of the most closely watched variables in urea. At present, rumours of fresh Chinese urea exports continue to circulate, though no official confirmation of 2026 quota allocations has been heard. Market participants are most concerned about the potential timing, volume, and inspection requirements of urea cargoes.

India – import dependence

India remains the single most important import market in the global urea trade. India’s urea market is facing a deepening supply crisis after March production slumped 29% year on year to 1.75 million tonnes, down from 2.48 million tonnes in March 2025. The decline reflects the impact of gas curtailments that reduced allocations to urea plants to 70–75% of their average consumption amid the conflict in the Middle East.

In response, the Department of Fertilizers has outlined plans to import approximately 6.4 million tonnes of urea ahead of the Kharif season. Indian imports are expected to rise in 2026, up from the figure of 9.3 million t/a in 2025, because domestic demand remains firm in spite of supply curtailments, meaning that India has to come into the international market, strengthening global pricing and tightening supply for everyone else. Because India’s fertilizer demand is tied to food security and farm support, it does not behave like a normal discretionary market. Governments will prioritise availability, which means import demand stays strong even when prices are poor. That makes India one of the key sources of support for the market in 2026.

Brazil

Brazil shows how price shocks change product choice as well as trade flows. Brazilian imports are forecast to rise to 8.1 million t/a in 2026, but much of the nitrogen basket has shifted toward ammonium sulphate, which is now increasingly competitive versus urea. Brazilian AS imports grew sharply in 2025, while urea imports fell, and that AS may overtake urea in import volumes in 2026 for the first time. This is important because it shows the market response to affordability stress. When urea becomes too expensive, buyers switch. In 2026 Brazilian urea affordability reached its worst level since 2022.

US tariffs

The United States has also played a role in shaping the nitrogen market through tariffs and anti-dumping or countervailing duty actions. While the US is not the single biggest driver of global urea pricing, its trade measures matter because they alter sourcing decisions and create regional price divergence. When tariffs are imposed on particular origins, the immediate effect is that those suppliers become less competitive into the US market. Buyers then look elsewhere, which can boost demand for alternative sources and shift cargo flows across the Atlantic or from the Middle East. In a tight market, this can raise US domestic prices by limiting access to lower-cost imports. In a weaker market, it may mainly reroute trade without a dramatic global price effect.

The broader impact is uncertainty. If buyers think trade policy may change, they often cover ahead of time. That front-loading can tighten the market temporarily and amplify price moves. In fertilizer, where seasonal timing matters and storage is costly, the fear of losing access to a supply source can be as important as the tariff itself.

In the US, urea and UAN affordability are at their worst since tracking began in 2013, although domestic production and government support programmes limit the risk of material demand destruction.

Affordability

Nitrogen demand is relatively inelastic, but affordability still matters. CRU’s affordability index rose from 133 at end-February 2026 to 206 at end-March, the worst level on record since tracking began in 2003. That is a very strong signal that buyers are under pressure, even if they cannot fully cut usage. This is why geopolitical shocks can have delayed effects. Farmers may not immediately reduce applications, but they may switch products, delay purchases, or cut back marginal use. In the US, for example, lower corn acreage and supply shortages are likely to curb nitrogen demand in 2026, with urea imports forecast down modestly year on year to 5.1 million t/a. The broader point is that poor affordability does not eliminate demand, but it can shift timing and product mix.

This year is clearly one of disruption, supported by conflict-driven tightness, strong import demand in India and Brazil, and policy-driven constraints in Europe. But prices are forecast to ease in 2027–2028 as new supply arrives, though they are still likely to remain above the 2023–2024 average. More than 13 million t/a of additional urea capacity is expected between 2025 and 2030, with significant additions in Russia, Africa, India, Australia, Iran, and other regions. New capacity in Nigeria, Iran, and Russia should eventually ease the market. But in the near term, policy and geopolitics dominate.