The lifting of economic sanctions against Iran has been discussed in the oil sector, but Iran also has designs on increasing its national fertilizer production with the aim of becoming fertilizer self-sufficient. It has long been the goal of the Iranian government for the country to be entirely agriculturally self-sufficient, but a wide range of soil types and climates has made it difficult to grow consistently high-yielding crops.
Iran is the 18th largest country in the world and is roughly 2 1/2 times the size of Texas. Major crops include wheat, rice, sugarcane, fruits, nuts cotton, dairy, wool and barley. Nearly all of the wheat grown in Iran runs through a flour mill for breadmaking while most barley is used to feed livestock domestically. According to data from USDA, from 2000 to 2015 annual wheat production averaged 12.7 million metric tons on 15.8 million harvested acres. Rice production averaged 1.6 million metric tons on 1.4 million harvested acres during that same period, and corn production averaged 1.7 million metric tons on an average of 706,000 harvested acres.
Roughly 40% of Iranian agriculture is under irrigation due to a hot and dry climate in some areas although most rice is produced near the Caspian sea where rainfall is sufficient to support rice paddies. True fresh water is hard to come by even in the best agricultural regions of Iran and most of the water used in irrigation has some degree of salinity leading Iranian farmers and scientists to seek out sodium resistant crop varieties.
Iranian rice growers tend to prefer ammonium sulfate for rice fertilization as the sulfur benefits crops grown in mildly saline areas and the nitrogen is slow to leech. Wheat and cotton growers rely on urea. Some areas of Iran are also rich in phosphate rock deposits and the country manufactures a range of phosphate products including DAP, single super phosphate, triple super phosphate and other suflur-based products. The country also produces a small variety of micronutrients.
In spite of the long held hope for self-sufficiency, Iran is still a net importer of both urea and wheat. But as fertilizer production grows, consumption is also on the rise as growers learn to utilize soil testing and sound agronomy to improve their tenuous soil nutrient profile.
According to EIA, Iran holds the world's fourth-largest proven crude oil reserves and the world's second-largest natural gas reserves. Oil and gas projects have been in decline over the past several years as economic sanctions and government policies prohibiting foreign ownership of oil and gas production have hampered demand and technological advancement. EIA says Iran produced an estimated 5.7 trillion cubic feet of dry natural gas in 2013, most consumed domestically.
So with plenty of natural gas to use as feedstock the question in Iranian fertilizer production is much like questions posed by the crude oil market. Will increasing urea production have an impact on global prices? To answer that question, we must remember that since the first fertilizer production facility opened in Iran in 1945, Iran has maintained the goal of self-sufficiency in both crop inputs and in finished crops. That suggests Iran will satisfy its domestic fertilizer demand long before turning to exports.
National policy is beginning to lean toward the inclusion of foreign natural gas exploration and that will undoubtedly lead to natural gas production increases and improved efficiencies as technology in the sector is updated. That will encourage urea and ammonia production and Iran's goal of self-sufficiency may soon be met on the nitrogen side. Near-term, since we do not expect significant export volumes of nitrogen or phosphate, the global supply balance will only be impacted as much as Iran turns away from imported fertilizers.
Decreased import demand for urea in Iran would support higher global urea stocks and in that indirect way, apply mild pressure to global urea prices. Iran has already committed to importing Black Sea wheat for its near-term wheat needs, and in the end, Iran may have to realize their soil is unable to support crop growth and yields to the level of satisfying 100% of domestic demand no matter how much urea they apply. On the fertilizer side, Iran should have no problem producing enough urea and sulfur-based fertilizers to fill domestic orders, reducing the need for imported nitrogen and phosphate.
Whether by force of global economic sanctions or by their own choice, Iran would just as soon function as a sort of agricultural island. Soil variability, volatile climate and water salinity will limit crop production prospects but improvements to natural gas infrastructure and increased urea production may well see the nation into nitrogen self-sufficiency. If that situation leads to a surplus and Iran becomes a net exporter of urea, sulfur and phosphate it may help to settle trade imbalances between crops and fertilizer.
A lot is still unknown about Iran but as global commerce and technology improvements increase, crude oil, natural gas and urea exports may one day be a factor in global trade imbalances. For now, Iran still has some work to do and will remain reliant on imports to answer domestic demand for grains and nitrogen. We will keep on top of Iran's designs to increase fertilizer production and as we learn more about this global power, we will have a better idea of how the softening of economic sanctions will impact global oil and fertilizer trade.
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Overhead field view