SunSirs: The Global Chemical Industry Faces Profound Adjustments

Shipping Through the Strait of Hormuz Disrupted; Middle Eastern Chemical Exports Cut Off

The ongoing escalation of conflict in the Middle East has dealt a severe blow to the global shipping system. As a vital chokepoint for approximately one-third of the world’s liquefied natural gas (LNG) and one-fifth of its crude oil shipments, the blockage of the Strait of Hormuz has triggered a rise in both oil and gas prices. Meanwhile, the disruption of Middle Eastern chemical exports has also impacted the chemical industry supply chain, leaving the global chemical sector facing profound and involuntary adjustments.

Following the Iranian Revolutionary Guard’s announcement of a blockade of the Strait of Hormuz—regardless of whether they can actually enforce it militarily—insurers have rushed to withdraw coverage. As a result, shipowners are choosing to anchor rather than risk passage, causing a sharp drop in the strait’s daily tanker traffic. A large number of tankers and container ships are stranded in the Persian Gulf, unable to depart normally. Currently, some traffic remains in the Strait of Hormuz, but since vessels passing through typically turn off their transponders to avoid detection, it is difficult to accurately track the volume of traffic; however, it has inevitably decreased significantly compared to pre-conflict levels. JPMorgan has warned that if the current blockade persists, it is only a matter of time before Brent crude oil prices surpass $120.

Even more critical is that the Middle East’s energy infrastructure is under direct attack. Following an attack on the Ras Laffan Industrial City in Qatar—the world’s largest LNG export hub—the facility declared force majeure, causing a sudden shutdown of operations at a facility responsible for 20% of global LNG supply. This has caused spot LNG prices in Asia to double, with LNG freight rates soaring from $40,000 to $300,000 per day—a 650% increase. Daily output from the three major oil fields in southern Iraq plummeted from 4.3 million barrels to 1.3 million barrels; Kuwait was forced to implement precautionary production cuts; and Saudi Arabia’s Ras Tanura refinery and Shaybah oil field were attacked in quick succession.

The surge in energy prices has rapidly trickled up the chemical industry supply chain. According to data from the International Energy Agency, for every $10 increase in oil prices, the cost of basic chemical feedstocks such as naphtha rises by 8% to 10%. Prices for key intermediates such as ethylene and propylene have consequently risen, ultimately impacting downstream products like plastics, synthetic rubber, and chemical fibers. Polypropylene prices in Asia rose by 12% in a single week, while European styrene contract prices face significant upward pressure. Soaring aviation fuel costs have also directly disrupted the chemical logistics system.

The Middle East remains a major global producer of chemical feedstocks, and exports of basic chemicals such as ethane, propane, and methanol are heavily reliant on the Strait of Hormuz. ICIS analyst Joseph Zhang noted that Asia uses naphtha to produce plastic-related chemicals such as polyethylene, polypropylene, and ethylene glycol. Data from the agency shows that by 2025, Middle Eastern exports of polyethylene will exceed 12.5 million metric tons, methanol 14 million metric tons, and ethylene glycol (MEG) 6.5 million metric tons, with most of these products destined for China, as well as other parts of Asia and the European Union. Turning to the sulfur market, nearly half of global sulfur trade originates from the Middle East; within just one week of the conflict breaking out, international sulfur prices rose by more than 30%. The methanol market is under similar pressure. The Middle East accounts for about 15% of global methanol production capacity; disrupted shipments combined with rising natural gas prices have driven Asian methanol prices to their highest levels in recent years. Qatar also supplies 40% of the helium used in global semiconductor manufacturing, and the disruption of this critical supply chain is impacting the chip manufacturing sector. Additionally, exports of nitrogen fertilizers from the Middle East have virtually ground to a halt, which could drive up global food prices.

Market observers also predict that, as transportation disruptions continue, Asian chemical plants will face the dual pressures of raw material shortages and soaring costs. Petrochemical companies in South Korea, Japan, and India are being forced to seek alternative supplies from the United States or Australia, but transoceanic shipping not only takes longer but also sees freight rates double, which may further drive up market prices. An OPIS analyst based in Saudi Arabia noted that while a decline in operating rates at Middle Eastern chemical plants has not yet been observed, local chemical producers are expected to begin reducing output, declaring force majeure, or even halting production within 10 to 14 days due to limited storage capacity.

ICIS reported that if naphtha supplies from the Gulf are disrupted, petrochemical facilities could reduce production or even shut down within four weeks due to raw material shortages. However, due to global overcapacity in most products, operating rates have been at historic lows, and it will take time to ramp up production or adjust supply chains. Currently, some Asian countries have suspended exports of certain chemicals to secure domestic supplies. European cracking units are particularly vulnerable to rising feedstock prices, as feedstock accounts for 70% to 80% of their costs; if forced to increase production, they will ultimately be constrained by feedstock shortages.

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