The EU introduced a progressive tax on Russian fertilizer imports amid concerns that soaring offtakes could wipe out domestic production. Since the levy came in force this summer, urea imports have dropped significantly but what will this mean for European fertilizer producers and ultimately for gas demand?
An EU tax on Russian fertilizer imports combined with the full implementation of the carbon border adjustment mechanism (CBAM) from 2026 could rejuvenate European ammonia and urea production. Nevertheless, the biggest point of uncertainty relates to the impact of the potential rise in fertilizer production on gas demand.
An ICIS analysis has found that the chemicals sector could see an inflection point this winter which could, in turn, impact gas consumption. Since the introduction of a 6.5% ad valorem duty plus a €40/t duty on fertilizer imports Russia and Belarus in July, urea imports from the Russian Federation have dropped by around two thirds to just over 100 000 t in July and August compared to record levels imported in June 2025, according to latest customs data.
EU tariffs on Russian fertilizer exports do not apply on ammonia, however ammonia is the feedstock for urea, phosphates and nitrates fertilizers. Market sources say importers had stocked up on Russian material ahead of the tariffs, which explains the steep drop recorded in July.
Data for September are yet to be updated but participants say that as the tax will further increase progressively to a maximum 6.5% ad valorem tariff plus a €430/t levy by July 2028, European producers will be able to ramp up production and operate at full capacity.
Although it is still early to assess the impact of the tax, there may be some early signs of recovery particularly now that European gas prices find themselves on a downward trend.
Romania’s Azomures, for example, which had been importing Russian ammonia has now ramped up nitrates production. Meanwhile, Achema in Lithuania, which had been affected by the influx of cheap Russian ammonia and had to suspend output in March has restarted production.
Market sources say Russian imports had been flooding the European market since 2022 because of record feedstock costs in the wake of the energy crisis. For example, in 2024, Russia accounted for 30% of the EU's urea and nitrogen fertilizer imports, at 4.4 million tonnes, valued at €1.5 billion, according to the European Parliament.
This represents a significant increase compared to 2023, when Russia provided over 25% of EU imports amounting to 3.6 million t and worth €1.28 billion, indicating a growing economic dependence on Russia. Companies had resorted to Russian imports because products had been cheaper than domestic output where costs had been soaring because of bullish gas prices.
The tax impact
However, with the introduction of the EU’s progressive tax in July, imports are expected to decline compared to the last few years, with a bigger focus on importing urea from North Africa including Egypt and Algeria, as well as from local producers such as the Netherlands and Germany. The resurrection of local production will also be aided by the introduction of the CBAM tax which will apply to carbon intensive goods imported from non-EU countries.
“So far, we have not been able to reach our capacity limits. I assume that there is sufficient production capacity and competition in Europe to meet the demand for fertilizers. And Russian producers will certainly look for other recipients,“ a market source said.
“The main thing is that some kind of normality returns to our business. We are still clearly noticing the record Russian quantities that arrived in Europe in June. What we are noticing, however, is that the trade is only now slowly addressing the CBAM issue," he added.
Gas impact
The energy crisis of 2022 triggered structural changes across the European chemicals business, with many plants either shutting down or relocating to other countries in search of cheaper feedstock.The drop in gas-intensive fertilizer production also affected Europe’s overall gas demand which plunged more than 20% over the long-term average in the wake of the 2022 energy crisis. As of October 2025, fertilizer production across Europe operates at 75 - 80% capacity but large chemical producers are still reeling under the two-pronged impact of ongoing bullish gas or electricity tariffs and overcapacity in China, which pressures indigenous output.
However, with fertilizer production now set to regain some momentum in the wake of the EU tax, there is also the promise that it may lift gas demand just as Europe is braced for a surge in LNG imports amid swelling global production. ICIS estimates that industrial gas demand in western and central Europe will recover modestly over the course of winter 2025/26 with a 1% increase over weak 2024/25 winter.
However, it remains some 2% below the five-year average. The stalling recovery is mainly due to a weak overall performance of the chemical sector- including ammonia.
In Q2 of 2025, production of basic chemicals has shrunk to around 70% of 2022 levels. This is a structural decline.
ICIS expects an inflection point for economic activity this winter with the chemical sector likely to move from negative 1% in 2025 to a positive 1% growth outlook for 2026 in the European Union, based on Oxford Economics forecasts. The economic recovery of the chemical sector is a key driver for ICIS’ expectation of modestly growing gas demand in 2026.
Fertilizer imports
Since its introduction this summer, the EU tax has already had an impact on urea imports, which have dropped substantially on volumes imported in recent years. Nevertheless, there are questions regarding future offtakes of Russian imports and their rerouting to other destinations.
For example, before its full scale invasion of Ukraine, Russia exported 4.42 million tonnes of ammonia in 2021 according to customs data mainly through the Yuzhny ammonia pipeline, also known as the Togliatti-Odesa pipeline.
Since then, a few cargoes have been exported through the Baltic port of Ust Luga but the market is waiting for the opening of Togliattiazot’s (TOAZ's) export terminal at Taman in the Black Sea that will have a total capacity of 5 million tpy for ammonia and urea.
With the introduction of the EU tax on fertilizer imports, there are expectations that most of these will be rerouted to other markets, including the US which has been the biggest importer of Russian urea.
Other markets, which Russia could target include India, China or Brazil. Russian fertilizer exports to India increased by 20% in H1 of 2025, rising to 2.5 million t and accounting for a record 33% of India's total imports.
The new tariffs include an additional €40/tonne on imports of most nitrogen fertilizers — including urea, ammonium sulphate (AS), AN, CAN, and UAN — from Russia and Belarus, beginning on 1 July.
They also add €45/t to the import of phosphate fertilizers including DAP (diammonium phosphate), MAP (monoammonium phosphate), NPKs (nitrogen, phosphorous, potassium), NP and some other grades. The new tariffs are additional to already-existing import tariffs to the EU. For most grades from Russia these import tariffs are set at 6.5%. From 2026 until 2028 the rates increase to reach levels of €315/t and €430/t respectively for the two product groups.
The new policy also foresees immediate application of the highest rates, if cumulative imports exceed 2.7 million t in 2025-2026, 1.8 million t in 2026 - 2027, or 0.9 million t in 2027-2028.
Original article written by Aura Sabadus, Andreas Schroeder, Deepika Thapliyal, and Sylvia Traganida at ICIS.