Europe must rationalize its gas import policy rightaway if the world is to prevent a food crisis

Of the world’s traded fertilizers, more than 40% of urea and 20-30% of potassic and phosphatic fertilizers—as well as 45% of the sulphur that goes into fertilizer manufacture—are shipped from Gulf countries via that vital waterway.

The blocked region also accounted for a fifth of all traded liquefied natural gas (LNG), some of which was feedstock for urea, before traffic through the strait came to halt. A shortage of all these products threatens food production and signals higher food prices globally, with hunger a distinct likelihood in countries that rely on imports for nutrition.

Since energy and food are essentials, supply shocks in these two categories tend to have a ripple effect that leads to elevated inflation. That, in turn, would induce monetary policy responses that could dampen investment, economic growth and incomes, thus tilting many parts of the world towards misery on more than one front.

Gulf fertilizer exports are not easy to substitute. But it would help if the world does whatever is possible to boost the availability of natural gas for the production of urea, its most widely used fertilizer. This can be done if Europe takes action.

The impact of the US-Israel war against Iran on oil and gas prices has differed. Brent and West Texas Intermediate, the two major global indices of oil prices, have risen by 55-70% since hostilities began on 28 February, while Henry Hub prices for US domestic gas have nudged up only 8-12%, even as European LNG prices rose some 20%—mainly a result of Qatar’s Ras Laffan gas facility going out of service.

The difference in price responses stems from the extent to which each commodity is globally traded. For gas, geographical proximity and pipeline infrastructure matter more. Gas can either be transported through pipelines or shipped after being liquefied and loaded onto specialized cold tankers.

The US gas market is relatively isolated, while Europe has in recent years been sourcing LNG from America as well as Qatar in the Gulf to replace its pipeline imports from Russia. This shift followed the Ukraine war’s outbreak in 2022.

Now with Gulf shipments disrupted, Europe should revert to using Russian gas. This would relieve the global LNG market of European demand and make this form of gas that much cheaper as an input for urea production elsewhere.

As a geopolitical decision, it should not be all that hard for Europe to suspend its boycott of Russian piped gas so that the LNG it imports is freed for fertilizer production. It would combine wisdom with self-interest.

Till some years ago, Russia used to pump gas into Europe through seven pipelines. Some of these lie damaged but most are reckoned to be usable. The Turkstream pipeline that runs from Russia to Turkey and thereon to Bulgaria, Serbia and Hungary, for example, carries plenty of Russian gas.

The US-led West recently showed a pragmatic streak in its sanctions on Iran to help the world absorb the latest energy shock. The same spirit could ease its clamps on Russian gas. If not, Europe could find itself faced with another wave of migrants looking for a place to live where food sufficiency isn’t a daily struggle.

This prospect should help focus the minds of European politicians on the value of acting against a fertilizer crisis while there’s still time to avert its worst effects.