I haven’t been tempted to speak about the Iranian conflict, which is spiralling into a full-on conflict – leaving that to other commentators. Rather, I would like to write about the importance of urea to Australia and the impact of blocking it on Australia’s agricultural and other markets.
Firstly, for the uninformed, what is urea, and why is it important to Australia? Urea is a critical input for the manufacture of nitrogen-based fertilisers. Roughly 90% of urea production is used in agriculture. Australia needs urea for our agricultural production. China and Russia are the two biggest producers, but export bans are now in place.
Our supplies now come from the Middle East, and Iran is one of the world’s most cost-effective producers, given its low-cost gas production. Iran has a series of gas-based plants that, as I understand, were still standing at the time of writing. Iran’s geographical location also provides it with direct access to maritime routes to major importing countries. Australia has the gas but not the manufacturing plants. Other Middle Eastern countries that produce are Qatar, Saudi Arabia, the UAE, Oman, and Egypt.
This is all academic, given that there is no traffic going through the Straits of Hormuz. These straits are critical to Australia. For those who may have heard the term “Straits of Hormuz”, I have attached a map. Just for context, these straits facilitate just under 40% of global trade.
What does this mean for Australia?
If the recent petrol price increase is any indication, we are about to see major increases in the cost of production for agriculture, explosives, plastics, and industrial fluids. This is how critical urea is for Australian producers. The spot price of urea has increased 17% at the time of writing. This will affect the production of cereals, including wheat and barley – key crops that feed Australia and our export partners. The price that the end consumer will pay will increase, especially if this is not resolved before May planting. This, in turn, will push up the inflation index, putting more pressure on the Reserve Bank to raise interest rates. This is what I see in the short term.
In the longer term, we need to learn that to remain a Sovereign Nation, we need to be able to fuel ourselves, feed ourselves, and defend ourselves. Fuel ourselves – we have two refineries left operating – there used to be eleven. We produce crude oil, but not enough of it. Defence – I am not going there.
It is plain that Australia, as a services-based economy, is folly and leaves us at the behest of bad actors and in the grip of falling living standards. We need to build resilience, and I appreciate that this is easier said than done. Without doing so, the flight of investment capital will continue overseas. Already, $8 out of every $10 of superannuation monies is invested overseas.
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