This debate is a bit like being in Groundhog Day it happens over and over again and it changes just a tiny bit each time. This iteration is a little bit different as it has thrown up a few new questions. I also have a few comments that have not been made yet.
Historically in response to the boarding of RMS Trent in international waters and the siezure of the Confederate Commissiones to France and Britain by an American Union warship the British Government did embargo all of the vast quatities of Indian saltpetre that DuPont had purchased and already loaded on to ships in the port of London and all of the lead (for bullets and balls) in the cargo as well. The Government the gave orders that no further saltpetre should be sold or exported to foriegn interests in India itself. This message was sent telegraphically for most of it journey. Unfortunately for DuPont saltpetre is highly hygroscopic and storing it on a ship for a prolonged period can lead to significant losses so he was in the worst possible position.
The British Government then significantly reinforced the British Army in the Canadas and the Maritimes and sent out modern guns, rifle muskets and ammunition for the militias. Reinforcements of men, weapons and ammunition were also sent to Bermuda and the West Indies garrisons. They sent more weapons and ammunition around the Horn to Esquimalt and New Westminster. Naval reinforcements were sent to the North America and West Indies Station and the Mediterranean fleet earmarked a large number of ships as further reinforcement. All around the coast of Britain Royal Navy warships due in commission in the next year or so were hurried to completion and were queueing up at the victualing and powder wharves waiting for orders to sea. Those ships in deeper reserve had shiprights, riggers and engineers working on them two 12 hour shifts a day to make them ready for war.
From the above a number of things are clear:-
1) There is no obvious scenario where the British would hold the DuPont saltpetre for a prolonged period without going to war with the Union in respect of the Trent Affair.
2) In a situation where the European powers decided to impose a diplomatic solution on the Union and Confederacy the British (nobody else has much saltpetre to trade) might withold saltpetre along with all other materiel of war but it would probably be unnecesary.
3) The British Government were completely aware of the importance of the saltpetre to any military endeavours of the Union. This passed the Union Army by in the run up to the DuPont mission.
Through a quirk of geography and religion/culture India was the source of most of the world's saltpetre in the mid-19th century. The cow is sacred in Hindu society so they could go where they liked and urinate where they liked. All living matter contains potassium ions and they are continually excreted in urine. Cow urine is rich in potassium. The weather in India is monsoonal, it pours down in vast amounts for a few months and then is bone arid until the next annual monsoon. This is important because as already mentioned saltpetre (KNO3) the main potassium salt in the urine is highly soluble and even a small amount of rain will leach it out of the topsoil and deep into the ground where it is lost. However in India there are no rains between monsoons. So what you do is scrape the top centimetre off of everyone's farm yard just before the monsoon is due and extract the saltpetre from that. For these reasons and because Britain controls India Britain is sitting on a mountain of saltpetre.
If the supply of India saltpetre via Britain to the Union stops thier war making capacity is seriously compromised. They have other options but none of them are really viable, all of them together are not really viable.
The Union could import seabird guano which is rich in nitrates and potassium. The Union did this anyway and used it as a fertiliser. Unfortunately the British control the seabird guano trade most of which was located off the west coast of South America at that time. To get guano from there to the east coast of the Union a ship needs to sail through three different Royal Navy stations. So in the event of a Trent war at least there will be a blockade of the Union and the seabird guano supply will stop. Of course the Union Government could sieze all of the private stocks but that is a very small quantity and would not make much difference.
There is bat guano in caves in both Union and border states. Depending on the type of bat excreting the guano it may be between 1 and 3 percent by weight compounds of nitrogen and potassium. So the first thing you have to do is convert the mixture of compounds to a saltpetre solution and recrystalise the saltpetre. This was apparently a lossy process back then so you recover considerably less saltpetre than the total amount mined. Unfortunately these bat caves are widely separated, in general remote from transportation and the amount of guano in most of them is not large. So a possible source of saltpetre but mining processing and trasportation costs will be very high and there is not nearly enough of it to make up for what was imported from the British.
Then there is Chile nitrate (sodium nitrate) mined in the arid deserts of Chile. You can react this with potassium hydroxide to get potassium nitrate. This is what they did at New Haven. It works. However there are a few problems with this approach too. The way to obtain potassium in this period was to burn a forest down collect up the ash and leach out the potassium. I exagerate only slightly, vast amounts of wood are needed for small amounts of potassium. As for seabird guano so too the Chile nitrate is three Royal Navy stations away so in a Trent war this material would be blockaded. Oh and once again Britain controls the trade.
Nitre beds are beds of rotting vegetable matter drenched in urine. Europeans and Chinese have been building nitre beds as long as they have had guns and fireworks. There are numerous approaches and methods. Historically the Confederacy did an excellent job of building vast nitre beds unfortunately nitre beds take an absolute minimum of 6 months to start producing saltpetre and 18 months is more realistic and the Confederate beds only really started producing in quantity at the end of the war. So this option is open to the Union but adding in planning and construction time it would not make a significant contibution until 1864 if started at the begining in 1862. There is one additional problem facing the Union in this approach, most European small farms at this time were clustered around a village making collecting and transporting urine, dung and other rotting matter relatively easy. Union farms at this time were widely spaced and remote from villages making collection, transportation and centralisation of nitogenous material time consuming, difficult and expensive.
It might be possible to import saltpetre from a non-British supplier? At this time most European nations are not disposed to sell saltpetre or gunpowder due to the British supra-abundance and national requirements. The Union did make equiries in Japan I understand but the saltpetre was of low quality and the regional lords would not sell as civil war in Japan (the Boshin war) was looking highly probable. I think but cannot say with certainty that approaches were also made to the Chinese Empire. In any event if there is war with Britain there is a blockade and any material from the far east has to get to the east coast of the Union so it is no more likely to get through than the guano and Chile saltpetre, less in fact as it has further to go. There is no point landing it in the California as there is no easy way of getting it overland to the Mississippi. At this time 2-5% mortality was common for wagon trains on the California and Oregon trails and the Great American Desert is still a desert pretty much.
There will be no smuggling saltpetre from Britain as this is a serious crime and if a British blockade is in place almost impossible anyway.
The annual gunpowder needs of the Union are very roughly 1/3 army, 1/3 navy and 1/3 civilian. In 1861/2 there are almost no other viable explosives military or civilian. Civilian use is nearly all mining, quarrying and a bit of civil engineering. If you want to supply your military with powder you can starve the civilian sector but there will be consequences for domestic production. The most significant of these being a drop in both coal and iron ore production. In the historical American Civil War iron production fell far short of consumption and the difference was made up by imports from Britain. In a scenario where the Union re-allocates gunpowder from mines to military purposes the shortage of iron becomes larger than it was historically and presumably without British imports even more of a problem. The other impact might be on gold mining in California but gunpowder there cannot be transfered overland east so it isn't really an issue.
If we assume a Trent war or any other European military intervention the overall requirement for saltpetre goes up as the coastal fortresses will need to be garrisoned.
Should things move to a Trent war the Union blockade of the Confederacy is raised immediately as the Union Navy has no means to sustain it and they can buy as much powder as they wish.
So my conclusions are:-
1) The British will embargo saltpetre until thier demands are met or until they go to war in which case the embargo becomes part of a blockade.
2) In the event of a Trent war the Union has no means of making up its immediate powder short fall and as a result of that will sue for peace with Britain at least very quickly.
I have a few questions.
1) The other component of gunpowder after charcoal and saltpetre is sulphur. In 1862 this is still mined by hand. The Confederacy is awash with the stuff, there are a few small mines and it was widely imported before the ACW for cotton processing. I want to know where the Union got it from and how much they imported. Does anyone know?
2) How much gunpowder and saltpetre was in California in 1861?
3) Someone suggested that kerosene would be in short supply in Britain if the Union stopped exporting it and that this would cause Britain to reconsider its position. It is my understanding that 1861 was only just after the peak of whaling, that they were already producing coal oil in Scotland, British cities have been lit by gas for decades and that the Baku fields were already open with the Russians refining oil. So I think this is a non-issue for the British. Does anyone else have a view or information?