Due to supply chain disruptions stemming from the conflict in the Middle East, India could potentially see a decline in fertiliser output. According to a recent Bloomberg report, New Delhi has asked China to allow the sale of some urea cargoes. Indian officials have asked Beijing to ease restrictions on exports of urea. China regulated urea exports through a quota system. According to Bloomberg, quotas for 2026 have not been announced yet.

Crisil Ratings, in a report, stated that the ongoing conflict in the Middle East could impact India’s annual domestic production of both complex fertilisers and urea by 10-15%. The report further states that the profitability of manufacturers is likely to drop amid reduced capacity utilisation due to supply constraints of key raw materials.

Additionally, a rise in working capital requirements of the companies is expected due to the increase in prices of raw materials and imported fertilisers. Crisil also expects the subsidy bill of the government to jump by INR200 to 250bn ($2.16 - $2.7bn). Nevertheless, two factors will support credit profiles: the strong liquidity of large fertiliser companies and the government's track record of supporting the sector over time with adequate and timely subsidy disbursements, Crisil says.

Urea accounts for 45% of fertiliser consumption in India, complex fertilisers (diammonium phosphate, or DAP, and nitrogen, phosphorus and potassium, or NPK) for one-third, and single super phosphate (SSP) and muriate of potash (MOP) for the rest. Fertiliser sector dependence on imports remains high, with about 20% of urea and one-third of complex fertilisers, primarily DAP, being imported.

Furthermore, the key raw materials for urea (natural gas, which comprises about 80% of the raw material cost) and complex fertilisers (ammonia and phosphoric acid) are largely imported due to limited domestic reserves.

For both urea and DAP imports, the Middle East remains an important region, accounting for about 40% of imports in the first nine months of fiscal 2026 (42% in fiscal 2025 and 28% in fiscal 2024). For domestic fertiliser production, the dependence on the Middle East is even higher, with about 60-65% of liquefied natural gas (LNG) and 75-80% of ammonia imports coming from the region.

Anand Kulkarni, director at Crisil Ratings, says that the ongoing conflict in the Middle East comes at the crucial time of sowing of summer crops. A disruption in the supply of fertiliser ahead of the summer crop sowing season could cause disruptions in sowing activities an later harvest yields.   

Kulkarni added that disruption in LNG and ammonia supplies continuing for about three months could trim Indian urea and complex fertiliser production by 10-15%. The impact on the output will be cushioned to some extent by the recent government decision for the allocation of 70% gas to urea manufacturers. Additionally, the fertiliser inventory of around three months, along with expected imports from alternative sources, will mitigate the risk of immediate supply shortages, he said

Profitability of urea players primarily hinges on the difference between prescribed energy norms and actual energy consumption, as natural gas costs are completely passed through. Energy consumption of efficient players is about 5% lower than the prescribed norms, which directly boosts their profitability. However, with a reduction in capacity utilisation, energy efficiency will be impacted, which will result in an impact on operating profits. Nonetheless, players with multiple plants may optimise gas usage between plants to lower the impact, Crisil said.

Rising input costs triggered by the West Asia conflict are expected to weigh on the profitability of complex fertiliser producers, as multiple variables, including higher raw material prices, the pace at which these costs are reflected in government-set Nutrient Based Subsidy (NBS) rates and controlled retail prices, come into play.  Prices of key inputs such as ammonia have already climbed by around 24% since the onset of the conflict, driven by supply shortages and higher logistics costs. However, the industry’s limited ability to pass on these increases to end-users means that margins are likely to remain under pressure. The extent of the impact will depend largely on whether the government revises NBS rates in line with the surge in input costs.

Industry participants indicate that additional subsidy support will be essential to offset the rising cost burden. Given the sector’s strategic importance for food security, the government has historically stepped in with higher NBS rates and targeted assistance, particularly for di-ammonium phosphate (DAP) producers.

According to Crisil Ratings, elevated input costs and higher import prices of fertilisers could push the overall subsidy outlay up by 12–15% for the fiscal year 2027. The agency noted that while subsidy disbursements have been relatively timely over the past five years, both the adequacy and speed of future payments will be critical in determining the working capital position of fertiliser companies. In the near term, most players are expected to manage liquidity pressures through available cash reserves and sanctioned bank credit lines, helping them navigate temporary mismatches in cash flows.

Looking ahead, the sector’s resilience will depend on its ability to diversify sourcing of raw materials and finished fertilisers, as well as the scale and timeliness of government intervention, particularly if the geopolitical situation in the Middle East remains prolonged.