The New Dark Age

Shanaka Anslem Perera proposes seven clocks that are ticking with respect to the US war of aggression upon Iran. Below I look at these seven clocks, some are correct, some are incomplete, and some show some basic ignorance. Maybe there are more than seven?

The Planting Clock

The planting clock. Mid-April is the biological deadline for corn and soybean planting across the US Midwest. Every day that passes without nitrogen becoming affordable and available narrows the window for corn. USDA projects corn falling to 94 million acres from 98.8 million. Soybeans rising to 85 million from 81.2 million. The seeds that go into the ground in the next three weeks determine America’s grain harvest in October. The decision is irreversible.

What an utterly US-centric view of the world! Of course, the planting clock is one for the whole Northern Hemisphere and is specific to the Urea nitrogen fertilizer exported from the Gulf states. The first thing to understand is that the quality of journalism these days is absolutely awful, with many articles not properly stating the difference between the share of nitrogen fertilizer global production and nitrogen fertilizer exports. Some countries have absolutely no issue with the availability of nitrogen fertilizers, but may be affected by increased costs:

• Russia: the largest exporter of nitrogen fertilizers, just stopped exports of nitrogen fertilizers until at least mid-April.
• China: second biggest exporter. Stopped exports in mid-March of “exports of nitrogen-potassium fertiliser blends and certain phosphate varieties” as reported by Reuters. China’s priority is keeping food prices for its own population affordable.
• Belarus: small net exporter, self sufficient domestically.
• Kazakhstan: big importer, but predominantly from Russia (as with all the “stans”)
• Indonesia: significant exporter
• Malaysia: significant exporter

Thailand and Vietnam both import large amounts of nitrogen fertilizer, predominantly from Russia, China and ASEAN nations. Given that China imports large amounts of food from Thailand and Vietnam it is in its interests to make sure that they have adequate supplies of fertilizer. There will also be pressure on Indonesia and Malaysia to prioritize fellow ASEAN nations. Russia has announced a stoppage on nitrogen fertilizer exports, but it will be in its interests to make sure that “friendly” countries get their supplies; such as China, India and Brazil. While the US and Europe are left bereft of Russia-sourced fertilizers.

With respect to the Middle East “Collectively, the Middle Eastern countries have an even larger say in global availability of nitrogen fertilizers than Russia: on a nutrient basis, the region has historically accounted for 12% of global production and nearly 25% of global trade” according to this article. So, only 12% of global production and that’s the whole Middle East not just the countries in the Gulf states. For example, Egypt is the fifth biggest exporter of nitrogen fertilizers globally; using its domestic natural gas. Oman is also a major exporter, with sea ports on the Gulf of Oman and Arabian Sea rather than within the Persian Gulf. Another variable is that of an Iran that is a major fertilizer exporter and does possess railway (to other Central Asian nations and most recently to China) and seaborne (the Caspian Sea and letting its own cargoes through the Strait of Hormuz) transport corridors. So the overall reduction in Middle Eastern exports may be significantly less than the headlines are pushing.

The US has incredibly cheap domestic natural gas, but it imports about 40% of its nitrogen fertilizer needs (a quarter from Canada as well as much of its phosphorous needs). Unlike China, the US state did not make sure that the most basic needs could be met from internal production where possible. China will keep its domestic fertilizer prices lower, due to export controls, the US will undergo food price inflation. With even domestic gas prices probably rising as private companies export as much LNG as they possibly can.

The European Union went on a self-imposed Russian natural gas hunger strike, driving up its domestic gas prices. A situation now getting many times worse with the US war of aggression on Iran, which could become even more catastrophic if Russia carries out its threat to end all LNG supplies to the EU. One of the things that the EU did not prohibit was imports of Russian nitrogen fertilizers, which constitute 22% of imports. With European gas prices going parabolic, many domestic fertilizer plants may shut down increasing the dependency on imports. Without Russian fertilizers (will Belarus also pronounce an export ban?) and quite possibly also Russian LNG, an intense fertilizer crisis could unfold within the EU. The efforts by the UK, France and other European countries to interdict Russia’s mis-named “shadow” fleet, together with the drone attack on a Russian LNG tanker in the Mediterranean, are most definitely tempting Russia to cut off fossil fuel exports to Europe.

The biggest losers will of course be the poorer nations that cannot afford the vastly higher prices even if the fertilizer is available. As noted above, Russia may work to bail India out as it has already been seen to with respect to oil and gas. Together with the rejection of the Trump across-the-board tariffs by the US Supreme Court, we may very much see a significant turning back of India toward Russia; a partner proven to be reliable over decades. The biggest global problem may be that of a Brazil that imports nearly all of its nitrogen fertilizer needs, as also with Argentina. Both are very large food exporters, so a reduction in yields would have very major impacts upon global food prices. Being in the Southern Hemisphere, the two nations’ fertilizer needs peak in July and August rather than in the northern Spring. So the critical period is somewhat delayed. Unlike an Australia that has a winter growing season which requires inputs from April to May, as well as August to October. The country has vast amounts of natural gas, but imports more than 60% of its nitrogen fertilizers!

The USDA Clock

Again an incredibly US-centric world view, but the forecasts for US planting will be an important marker for the scale of the coming crisis; on March 31st. Of course, the farmers may still be relatively optimistic as they will not be fully feeling the impacts by the end of this month

The USDA clock. March 31. Prospective Plantings. The report that converts farmer intentions into official data. Every acreage number, every corn-soy ratio, every nitrogen-dependent calculation becomes a published fact that traders, governments, and food agencies will use to model global supply for the next twelve months. The number arrives in twelve days.

The FAO Clock

Really, by April 3rd the whole impact of a global reduction in fertilizer availability, and the loss of oil and gas from the Gulf states will be reflected in food prices? It will take many, many months for such an impact to be fully reflected. In March 2022, European gas prices had been elevated at quite extreme levels for many, many months (they were at extremes in 2021), not just due to the Ukraine War).

The FAO clock. April 3. The Food Price Index. The first global reading that captures post-Hormuz commodity prices across cereals, vegetable oils, dairy, meat, and sugar. The 2022 peak was 159.7 in March 2022 after Ukraine. This reading will incorporate oil above $100, urea at $610, LNG halted, packaging repriced, and freight surcharges of $500 to $1,500 per container. The number that determines whether the UN declares a food emergency arrives in fifteen days.

The Pharmaceutical Clock

This is a very real issue for India, which is an issue for a US (and Canada and Europe) that gets so much of its generic drugs from India.

The pharmaceutical clock. India’s API inventory buffers are two to three months, measured from the war’s onset on February 28. Late May is the depletion window. Methanol at 87.7 percent Hormuz exposure feeds the solvent chain for paracetamol, ibuprofen, metformin, and antibiotics. Once buffers deplete, the shortage becomes a patient access crisis for the 47 percent of US generics that originate in India.

Russia also gets 35% of its drugs from India, but it is also a very major exporter of methanol. Perhaps a deal is made that India keeps supplying Russia and it will provide the methanol? China is pretty much self-sufficient in pharmaceuticals, but is a very major importer of methanol. Again, the question is whether or not Russia will redirect its exports to aid its friends and punish its enemies. China can also prioritize its methanol usage, as much of it is not used for pharmaceuticals. Not mentioned by Perera is that Europe is also a major methanol importer (but not from the Gulf states), and has a large pharmaceutical industry.

The China Crude Clock

China cannot “accelerate Russian pipeline imports” of oil as those pipelines are extremely limited in capacity. Russia will help out by rerouting export tankers, and China will of course access its massive strategic reserve. That latter option will not “reprice every commodity on the planet”. China will continue its blockage of the export of oil products (1 mbpd of crude used for diesel, jet fuel etc.) and stop the strategic reserve build (about 1.5 mbpd). At the same time it will move to greatly incentivize / direct its population to use its electrified public transport network (trains, subways, trams, buses) and the increasing fleet of electrified taxis and personal vehicles (now 12% of the personal vehicle fleet) to cut oil consumption.

The China crude clock. FGE NexantECA confirmed China is drawing commercial reserves at up to one million barrels per day. The draw sustains refinery operations for four to six weeks from March 19. Mid-April to late April is the exhaustion window. After that, China faces three options: accelerate Russian pipeline imports, reroute at massive premium, or crack open the strategic petroleum reserve. The third option reprices every commodity on the planet.

Together with increased oil imports from Russia, some by oil trains if necessary, the draw on the strategic oil reserves may be only a few mbpd; with reserves of over 1 billion barrels. During an extended period, e.g. many months, more fundamental changes could be made to oil demand if needed. A probable global recession would also cut demand for Chinese exports, reducing further China’s oil demand.

The Helium Clock

This is a very real issue not just for South Korea, but also for Taiwan (home of TSMC), Japan (another major electronics producer) and China (the biggest electronics manufacturer in the world).

The helium clock. SK Hynix and Samsung hold two to three months of helium inventory. Late May to early June is the depletion window. South Korea imports 64.7 percent of its helium from Qatar. Ras Laffan is offline. If helium buffers deplete before alternative supply arrives, semiconductor fabrication faces rationing. The AI hardware supply chain hits a physical wall measured in months, not quarters.

For China over 50% of the imports of helium come form Russia, the balance mainly from Qatar. China is building its own domestic sources of helium to reduce its 90%+ import dependency, but these efforts are in the early phases. Russia is ramping up its helium production with the massive Amur Gas Plant that sits right next to China and is reaching full production in 2026. Both South Korea and Taiwan rely on Qatar for two thirds of their helium imports. Japan imports helium from the US, Qatar and Russia.

The Insurance Clock

A very real issue, all that Iran has to do is to continue to block non-approved ships from traversing the Strait of Hormuz, including attacking those that attempt to run the gauntlet, to continue to freeze the insurance industry.

The insurance clock. Solvency II requires 30 to 60 days of zero incidents before P&I clubs can reinstate war risk coverage. Even after a ceasefire, the insurance normalisation takes six to sixteen months based on the Red Sea precedent of 26 months and counting. The logistics system lags the financial relief rally by the longest duration of any clock in this crisis.

But the reality is much worse, as Iran has stated its intentions to continue to oversee the operations of the Strait. With only ships that meet its defined conditions being allowed to move through the Strait (e.g. a fee to in Yuan Iran, sale only in Yuan, from country with no US bases etc.). What happens in mid-April when the at sea tankers have delivered their oil and gas from the Gulf and there are no further deliveries from the Gulf coming? Perhaps the “tankers at sea” clock? Another reality is the amount of production that has been shut in for a significant amount of times that will takes many weeks or months to get safely restarted, together with the damaged facilities that may take years to bring back on line; the restarting and rebuilding clocks? The impact of the US aggression is already compounding out in time after just under four weeks.