VINACHEM

The European Union’s efforts to limit Russia’s war chest will likely continue to intensify despite news of a potential ceasefire with Ukraine, as the EU must now shoulder more responsibility for its own security given the rupture in the transatlantic alliance. Yet the bloc continues to overlook one of the Kremlin’s critical revenue channels: fertilisers.

Russian fertiliser exports to the EU surged by over 33% in 2024 alone, reaching 6.2 million tonnes worth over €2.2 billion. This trade, exempt from sanctions, generated an estimated €550 million in tax revenue for the Russian state. Poland, by far the biggest buyer of Russian fertilizers, saw purchases more than double in 2024.

The war in Ukraine disrupted global energy markets, which significantly reduced the EU’s domestic fertilizer production. The price of natural gas, the main input commodity for the production of fertilizers, surged to record high levels following the onset of the conflict, and at one point, roughly 70% of ammonia production capacity in Europe was either shut down or idled. Russian producers have successfully tapped this supply gap to expand sales to the most vulnerable markets.

While the EU has diminished Russian natural gas imports from 40% of the total in 2021 to around 10% after the halt in the Ukrainian gas transit at the end of 2024, Russia has taken advantage of its enormous gas production surpluses to successfully replace part of the gas export revenues with fertilisers sales.

This increase in Russian fertilizer sales is not confined to Europe. Globally, Russian companies have capitalised on post-invasion price volatility by offering fertilisers at steep discounts of over 20%, enabling them to capture greater market share. Nowhere is this more evident than in Latin America, opens new tab, where agricultural exports are a core economic driver. Brazil has become the world’s largest market for Russian fertilisers, accounting for 25% of Moscow’s global sales (around $4 billion per year).

Russia’s fertiliser strategy appears to mirror its historical use of natural gas exports: it leverages supply dependence to secure strategic influence. By embedding itself in global food production chains, Moscow has gained new geopolitical leverage, particularly in regions like Latin America and South Asia that are highly exposed to agricultural shocks. Any future disruption in Russian fertiliser exports, whether from sanctions or market shifts, could have severe implications not just for regional economies, but for global food prices.

STRATEGIC LOOPHOLE

The fertilizer dependence goes two ways, though. The Russian fertilizer industry is heavily reliant on exports, with 64% of its production sold abroad. However, the shifting dynamics of the global fertiliser market have opened a strategic loophole allowing several large Russian companies to profit by effectively controlling the fertilizer trade with the European Union.

These leading Russian producers – Uralchem, Acron Group and EuroChem – are consequently flush with cash and expanding aggressively. EuroChem recently opened a $1 billion fertiliser plant in Brazil, while Uralchem is building major new production facilities in Russia’s Perm region.

The European fertiliser industry, meanwhile, continues to struggle. Domestic producers face higher labour costs, stricter environmental regulations, and weaker policy support. To level the playing field, European manufacturers have called for a more forceful response. The industry organization Fertilisers Europe has proposed an immediate tariff floor of 30%, which would increase every six months.

But some European producers argue that a response now may be too late as Russia has already seized nearly a third of the EU’s fertiliser import market, up from just 17% in 2022. This has placed domestic producers at a competitive disadvantage and deepened the bloc’s exposure to geopolitical risk.

The EU is also pursuing structural change. The European Commission is reviewing regulatory constraints under its Nitrates Directive, opens new tab to enable greater use of manure-based fertilisers while addressing environmental concerns such as nitrogen runoff.

However, such transitions will take time, and Russian producers’ grip on the market is continuing to expand now.

The fertiliser trade has become a critical blind spot in Europe’s sanctions regime. But limiting Russian fertiliser revenues could become a geopolitical necessity now that the bloc can no longer depend on U.S. support in any efforts to pressure Moscow. Inaction may no longer be an option.