Hormuz and nitrogen
A first-quarter shock made North American fertilizer look like the safe place to make nitrogen. In the second quarter the same CEO said the durable piece was construction costs. Both sentences stand.
In the first quarter of 2026, three things happened at once to the nitrogen market. Iran and the Strait of Hormuz halted regional urea and ammonia exports. Russia restricted shipments to protect its own farms. Egypt put a $90-a-ton duty on fertilizer leaving the country.
China, the world’s largest nitrogen exporter, kept product at home. Controlled urea shipments later in the second quarter, CF Industries said, would not offset what the Middle East had lost. India came into the year with thin inventories and a potential 10 to 12 million metric ton import requirement — 10 to 30 percent above 2025, nearly double 2024.
CF Industries is the largest North American nitrogen producer. Christopher Bohn, the chief executive, used the quarter to reclassify the industry. First-quartile producers used to be defined by cheap gas alone. That, he said, is no longer enough.
low-cost feedstock is no longer enough. As a result, we see a clear divide within the first quartile. North America… is low cost and low risk, representing premium-grade assets. This is in stark contrast to approximately 50% of first quartile capacity that is fragile and exposed.
Christopher D. Bohn, CF Industries, first quarter 2026
A higher urea price, he said then, is now required to get anyone to build in a risky region. Adjusted EBITDA was $983 million in the quarter. Trailing free cash flow was $1.65 billion. Blue Point, a new ammonia plant, adds 1.5 million tons and is due late in 2029.
Exxon, independently, reported a temporary loss of about 10 percent of upstream production, with Hormuz transit still on the volatility list. That is corroboration of a shared regional shock, not of CF’s reclassification. Brent Johnson later noted that many ships did not get out during planting season, so the agricultural-input effect is lagged. After a 60-day toll-free window, Iran charges about $1 a barrel — about $2 million per very large crude carrier — to transit the strait. In that reading the friction does not revert to the pre-war baseline.
Then he argued with himself
Three months later Bohn said the market was looking at the wrong thing. Too much of CF’s earnings growth, he said, was being viewed “through the lens of short-term geopolitical friction in the Middle East.” The structural shift was higher global capital costs, which had raised the incentive price for new nitrogen capacity. “This is before we factor in any geopolitical premium.” North America’s low-cost, low-risk asset base, “and not geopolitical risk,” was “the foundation of our profitability.”
Mid-cycle EBITDA is now targeted at about $2.9 billion, with a path to $3.3 billion by the end of the decade, on $410 a short ton. First-half 2026 adjusted EBITDA was $2.2 billion at about 98 percent ammonia utilization. Freight from the Middle East to the Gulf is about $70, against $35 a year ago. “Do we expect that to snap back to $35 and not have any type of structural piece to that? Probably not.” Seaborne urea secondaries in September sat above that $410 marker on some days — $453 a ton on the 14th, $443 on the 4th — from Fertilizer Daily, Profercy, and Trading Economics, not an 8-K. China’s 2026 export quota is two numbers that do not agree: one September piece cites 3.3 million tons against about 5 million shipped in 2025; another cites a 5 to 5.5 million-ton allowance. Leave both on the table. Nutrien’s second quarter was not re-fetched as restating Bohn’s geopolitical-premium sentence. The third-quarter print is still ahead. Do not re-rate CF or Nutrien on a secondary tape.
Middle East to US Gulf freight
Bohn, second-quarter 2026. He does not expect a snap-back. Second-quarter EPS of $4.73 missed consensus around $5.79.
The mid-cycle number is now company guidance. The route that produced it is contested. In the first quarter the uplift ran through Hormuz, Russia, Egypt, and China. In the second it ran through construction costs — a channel that does not unwind when the strait reopens. If the first account is right, Hormuz reopening would unwind the premium. If the second is right, the thing to watch is global construction costs coming down.
The European deferral
There is a second clock on nitrogen, and it is regulatory rather than naval. The EU’s Carbon Border Adjustment Mechanism hit imported urea with up to €120 a ton from January 1, 2026. European farmers and merchants front-loaded purchases in November and December 2025 — 60 to 80 percent above normal volumes at a time of year they would never normally buy. Those stockpiles cushioned the 2026 planting season through May and June.
Once the pre-bought stocks deplete, fertilizer arrives both CBAM-taxed and structurally more expensive. Supply is being re-routed to North Africa — Algeria, Morocco, Egypt — where buyers like India are signing huge contracts. The crisis is delayed, not avoided. Lorcan Roche Kelly’s framing: “this is not a crisis that’s going away, this is a crisis that’s delayed.”
The CBAM mechanism and the Hormuz shock are distinct forcing functions. CBAM is about European regulatory front-loading and a deferred price crisis timed to the second half of 2026. Hormuz is about reclassifying who counts as low-cost and low-risk in a world where cheap gas is no longer enough. They can reinforce the same North American premium without sharing a mechanism.