The conflict in Iran has kickstarted a global oil supply crunch as the weekslong conflict has spread to the Middle East and led to the closure of the Strait of Hormuz, a vital shipping lane for global trade.

Prior to the conflict, the price of Brent crude oil stood at $72. However, once the fighting intensified, prices skyrocketed and remain well above $100 per barrel today. To make matters worse, oil and gas sites in the Middle East have received some damage as well.

While the fighting in Iran has introduced volatility to global markets, some industries and companies have benefitted from this geopolitical conflict.

Among them is CF Industries (CF), a U.S.-based fertilizer producer.

Aside from being used as an energy source, petroleum is used as a raw material in the creation of plastics, solvents, polyurethane, fertilizers, and other end-user products.

With the Iran conflict spreading to the rest of the Middle East, fertilizer production from leading producers in Qatar, Saudi Arabia, and Bahrain has been disrupted.

In all, the Strait of Hormuz facilitates roughly a third of the world’s fertilizer supply. To further add to the problem, the closure has blocked around 20% of the supply of liquefied natural gas (“LNG”), which is vital for fertilizer manufacturers in Europe and the rest of the world.

And countries in these regions can’t turn to Russia—the world’s second largest fertilizer producer—to fill the supply void. The country recently announced that it will suspend exports of ammonium nitrate to prioritize its domestic market amid the global shortages.

While global fertilizer producers scramble, CF Industries has emerged as a rare winner from the current conflict. 

The company largely relies on North America-sourced natural gas to produce its ammonia and nitrogen fertilizers. While European and Asian competitors are scrambling to pay for expensive inputs for fertilizer, CF is benefiting from consistent supply of natural gas.

This has positioned the company as a clear winner despite the wider market’s struggle throughout the war. CF’s stock is up more than 20% in the past month, while the S&P 500 has slid 5%. 

With no clear end to the fighting in the Middle East in sight, global fertilizer supply will remain constricted, and prices will continue to climb. 

As long as that continues to persist, CF Industries provides a compelling short-term opportunity for investors.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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