US Designs a Mechanism for Insulating Russian Fertilizer Exports from Sanctions

While the US sent a strong message to India on Thursday about the "consequences" of circumventing sanctions, the Biden administration has ironically carved out a mechanism that would protect Russian fertilisers from potential sanctions.

The US Treasury's Office of Foreign Assets Control (OFAC) issued a new general licence on March 24, effectively removing Russian mineral fertilisers from potential sanctions. They were added to the list of essential products, which also included agricultural products, medicines, and medical supplies.

According to them, the reason for the US decision was a global shortage against the backdrop of disruption in Russian supply logistics.

According to Dutch lender Rabobank, Russia and Belarus together accounted for more than 40% of global potash exports last year, one of three critical nutrients used to boost crop yields.

In addition, Russia exported approximately 22% of the world's ammonia, 14% of the world's urea, and 14% of the world's mono ammonium phosphate (MAP) - all-important fertilizer types.

Sanctions have hampered Russian fertilizer and crop sales. Many Western banks and traders are avoiding Russian supplies for fear of violating the rapidly changing rules, while shipping companies are avoiding the Black Sea region for safety reasons.

In the United States, Russian supplies account for 6% of total imports of potash, 20% of diammonium phosphate, and 13% of urea.

India began talks with Russia in February to secure long-term fertilizer supplies. If it had been approved, it would have helped India secure stable import rates despite high global prices.

It would also have provided some relief from the geopolitical instability that has been affecting supply. However, things changed after February 24. Russia alone accounted for more than 17% of total MOP (muriate of potash) imports and nearly 60% of NPK (nitrogen, phosphorous, and potassium) imports in FY 2021.