Global Fertilizer Faces Shortage! "Second-Order Effects" of Strait of Hormuz Blockade Incoming - Morgan Stanley: Middle East is More Than Just an Oil Reserve

Financial Times APP has learned that recently, Morgan Stanley released a research report discussing the “second-order effects” of the Strait of Hormuz blockade. If the first-order effect is a surge in energy prices impacting various asset classes worldwide, the second-order effect involves supply crises in energy-intensive industries such as aluminum, petrochemicals, and fertilizers. Among these, the vulnerability and shortages in the fertilizer supply chain are particularly prominent, transmitted through global trade channels to various economies. Emerging markets are most affected, but developed economies are also not immune.

Part 01: The Middle East is More Than Just an Oil Reserve

The Middle East is a key supplier of global oil and natural gas, as well as a crucial producer and exporter of aluminum, petrochemicals, and fertilizers. These industries are energy-intensive and deeply integrated into the global supply chain, closely linked to oil and gas resources: fertilizers and plastics are directly made from hydrocarbons, aluminum production is one of the most energy-consuming industrial processes worldwide, and sulfur and sulfuric acid—core raw materials for fertilizers and industrial chemicals—are also major exports from the Middle East.

Morgan Stanley believes that disruptions in energy supply and logistics directly cause shortages or delays in downstream raw materials. The duration of these second-order effects is expected to outlast the conflict itself, as post-conflict recovery efforts will prioritize oil and liquefied natural gas transportation, while industrial capacity restoration will be secondary.

Based on trade data, the impact of this disruption on industries such as aluminum, petrochemicals, and fertilizers has already affected multiple upstream sectors through global trade channels.

Part 02: Global Fertilizer Shortages Loom

Relying on abundant and low-cost natural gas resources, the Middle East is a major producer of nitrogen fertilizers like ammonia and urea, serving as a critical support for the global fertilizer supply chain. Disruptions in fertilizer supply will have direct impacts on global agriculture and related industries, making this the most widely affected sector in the second-order effects.

Trade impacts are significant: over $12 billion worth of fertilizers are imported from the Middle East annually, accounting for more than 16% of global fertilizer trade. For some nitrogen fertilizers, Middle Eastern imports exceed 25%. Many agricultural economies are highly dependent on Middle Eastern fertilizers.

Upstream raw material shortages are also a concern: the Middle East is a key supplier of sulfur and sulfuric acid, with about $5 billion worth of trade at risk of disruption. These materials are essential for fertilizer production; shortages will further constrain fertilizer capacity from the raw material side, creating a vicious cycle in the supply chain.

The supply gap is rigid: as a core input for agriculture, fertilizer demand is closely tied to planting schedules. The sudden interruption of supplies from the Middle East makes it difficult for dependent economies to quickly find alternatives, resulting in a rigid supply shortfall.

Part 03: Disruptions in Aluminum and Petrochemical Trade

While fertilizer shortages are a core pain point, simultaneous disruptions in aluminum and petrochemical trade add to the pressure on the global industrial supply chain. Both sectors rely heavily on Middle Eastern supply and are key upstream raw materials for downstream manufacturing.

(1) Aluminum Trade: 8% of Global Volume at Risk

Over $15 billion worth of aluminum trade faces disruption, mainly unrolled aluminum products, representing about 8% of global aluminum trade. These products are vital upstream inputs for downstream components and finished goods.

The Gulf region—UAE, Bahrain, Qatar, Oman—is a major global supplier of aluminum, primarily exporting to Asia and parts of Europe. Disruption in energy production and logistics through the Strait of Hormuz will directly restrict exports of primary aluminum and semi-finished aluminum products from this region, creating a global supply gap in upstream aluminum raw materials.

(2) Petrochemical Products: 9% of Global Plastic Trade Exposed

The Middle East is a major exporter of petrochemicals and plastics. About $26 billion worth of plastic trade is at risk, accounting for roughly 9% of global plastic trade. China, India, Turkey, and Egypt are among the most affected economies.

Plastics are fundamental raw materials for packaging, industrial manufacturing, and consumer products. Shortages will directly cause raw material gaps downstream, compounded by shortages in fertilizers and aluminum, amplifying the overall industrial supply chain impact.

Part 04: Emerging Markets Bear the Brunt

Morgan Stanley sees the second-order effects of the oil price shock as uneven across economies. Emerging markets are the primary bearers of shortages in fertilizers, aluminum, and petrochemicals, while developed economies, though structurally more resilient, still face significant raw material import vulnerabilities, with risks gradually spreading.

Concentrated impact on emerging markets: India, Brazil, Turkey, and South Africa are the largest importers of aluminum, petrochemicals/plastics, and fertilizers from the Middle East. The simultaneous shortages of these core upstream raw materials directly threaten their agriculture and manufacturing sectors, creating substantial supply chain pressures.

Developed economies’ raw material exposure: Australia, as a resource-rich country, still imports large quantities of fertilizers from the Middle East and faces direct shortages. Japan, South Korea, Italy, and the US import at least 10% of their aluminum from the Middle East; shortages in aluminum raw materials will propagate to their downstream manufacturing industries.

Part 05: Key Conclusions

The oil price surge caused by the Strait of Hormuz disruption has extended beyond the energy sector, evolving into a supply crisis for upstream industrial raw materials such as aluminum, petrochemicals, and fertilizers. Fertilizer shortages, linked to global agriculture and food security, are the most critical risk point in this second-order effect.

Morgan Stanley highlights two prominent features of this impact:

First, persistence: post-conflict recovery efforts will prioritize oil and gas transportation, while industrial capacity restoration will lag, meaning the effects of raw material shortages will outlast the conflict itself.

Second, transmission: the effects will spread through global trade channels from upstream raw materials to mid- and downstream industries, penetrating from emerging markets to developed economies.

For global economies, supply chains must adapt quickly to raw material shortages. The disruptions caused by this event are already significant. Amid the backdrop of a global manufacturing recovery, economies face multiple pressures—raw material substitution, inventory management, capacity adjustments—which will become key variables influencing the pace of global economic recovery.