The Strait of Hormuz quickly became a choke point for energy and chemicals trade from the Middle East after the US and Israel went to war with Iran. About a quarter of all seaborne oil and a fifth of liquified natural gas (LNG) has passed through this narrow passage between Iran and Oman in recent years.
At its narrowest it is 40km wide, with a maritime lane of around 4km, and the conflict has effectively closed it to shipping. This halted exports of chemicals and hydrocarbons from Iran, Iraq, Kuwait, Bahrain, Saudi Arabia, United Arab Emirates and Qatar. Shipments of nitrogen fertilisers also stopped, which in time could inflate food prices.
‘About 12–14 million barrels a day of crude oil transits through the Strait of Hormuz, plus about 4 million barrels of refined products, about a million barrels of LPG, a million barrels of naphtha and 1.2 million barrels of jet and diesel fuels combined,’ says Alan Gelder, market analyst at Wood Mackenzie.
The volume is recoverable if other regions ramp up quickly, but […] the potential for short-term volatility is very high
Around 80% of oil shipped through the strait in 2025 was heading to Asia, with liquefied petroleum gas (LPG) and naphtha typically exported to Asia and liquid fuels to Europe. Oil prices tracked upwards, along with precursor chemicals for plastics and other materials.
Hundreds of tankers and container ships, many carrying liquid hydrocarbons and chemicals, are stuck in the gulf either side of the strait. Asian chemical producers are especially vulnerable, with China more reliant on the Middle East for feedstocks following recent trade disputes with the US. ‘Asia uses naphtha to produce a lot of commodity chemicals that go into plastics such as polyethylene, polypropylene and ethylene glycol,’ says Joseph Chang, editor of Chemical Business at market research firm ICIS .
The Middle East also exports plastics and chemicals, including more than 12.5 million tonnes of polyethylene (PE), 14 million tonnes of methanol and 6.5 million tonnes of monoethylene glycol (MEG) in 2025, much of it destined for China, wider Asia and the EU, according to ICIS. ‘The market for MEG is structurally oversupplied, yet Middle East assets have a feedstock advantage and are running above 80% [capacity] on average,’ says Mariana Santos Moreira, analyst at OPIS Chemical Market Analytics.
China is the largest consumer of MEG and could face critical shortages. Loss of gulf MEG would also impact India, Indonesia, Pakistan, Vietnam and Thailand. A report from Chemical Market Analytics predicts that Asian buyers will seek cargoes from the US Gulf Coast, which may drive prices back up in an industry that had been struggling with oversupply and deep discounts. ‘Some of [Asia’s] other production plants make propylene and polypropylene from propane,’ says Chang. ‘There will be less propane available and those prices will go up.’
Some producers outside the Middle East might not want to fill the gap until there is a price incentive to do so
Approximately 15% of polyethylene and polypropylene production around the Persian Gulf will likely be disrupted (over 30% of global trade volumes come from the Middle East). ‘The volume is recoverable if other regions ramp up quickly, but supply chains will need time to adjust, so the potential for short-term volatility is very high,’ according to a Chemical Market Analytics report. With naphtha from the gulf shut off, petrochemical producers ‘will need to cut [production] or even shut their crackers as feedstocks are likely to dry up in about four weeks or less,’ ICIS reported.
Overcapacity has kept global operating rates at historical lows across many products, and it takes time to ramp up production or alter supply chains. ‘We need to keep in mind that some producers outside the Middle East might not want to fill the gap until there is a price incentive to do so,’ says Santos Moreira. For now, polymer production in the Persian Gulf continues and there has been no damage to production sites. Given that the war could end quickly, producers elsewhere will tread carefully rather than going to the expense of opening facilities that may then not be needed. However, some Asian countries are already halting exports of some chemicals to retain supplies.
European crackers will be hurt by higher feedstock prices. ‘For a typical steam cracker [in Europe], feedstock counts for 70 to 80% of costs. That means European crackers will take a huge hit,’ says Mohamed Chilmeran, market analyst at Wood Mackenzie. European crackers may ramp up, but eventually they could be derailed by feedstock availability. Without Middle East exports ‘there’s simply not enough hydrocarbon liquids to satisfy global demand,’ says Gelder.
If the conflict spreads to the extent that it damages energy or petrochemical facilities, then the story changes
Gas prices quickly surged in Asia and Europe. Almost all of Qatar and UAE’s LNG trade exits through the strait, with no alternative route to market. Asia gets 90% of these exports, with 10% going to Europe. European jet fuel prices spiked, as the region depends on imports from the Middle East. Chemical producers that use gas for process heating have also reportedly begun adding fuel surcharges to existing contract prices for some chemicals in response to gas price spikes.
Chilmeran, who is based in Saudi, is not yet aware of reductions in operating rates at chemical plants in the Middle East. ‘I would assume in ten days to two weeks they would either start decreasing operating rates or start declaring force majeure or even shutdown operations,’ he says. There are storage facilities for oil and gas, but less for chemicals, which are usually just exported directly.
Wider economic impacts are expected. It is estimated that a quarter of nitrogen fertiliser is shipped through the Strait of Hormuz, with around 15 million tonnes exported each year as urea and ammonia. ‘Food prices will start to rocket as fertiliser exports get hit. This is not just an oil but a global economy story,’ says Gelder.
There could beneficiaries. ‘The US and Canada could be big winners,’ says Chilmeran. North America has lower feedstock costs, giving an advantage in glycols, polymers and other chemicals. An uncertain future, however, and the background of sustained oversupply, means that they could be reluctant to ramp up production.
The war could yet be resolved quickly or it could escalate. Initially, logistical difficulties were in focus and there has not been sustained targeting of petrochemical plants. Nevertheless, on 4 March, QatarEnergy said it cannot fulfil gas contracts because of attacks on its facilities. Bahrain said on 5 March that a fire broke out at its Bapco Energies refinery after an Iranian missile strike. ‘If the conflict spreads to other Middle Eastern countries to the extent that it damages energy or petrochemical facilities, then the story changes,’ says Santos Moreira.
No comments yet