SunSirs: Middle East Conflict Forces Asian Petrochemical Industry to Adjust Development Path

According to China Chemical Industry News, the 2026 Asia Petrochemical Industry Conference (APIC 2026) was held in Fukuoka on May 28–29 under the theme "Uniting the Chemical Industry to Build a Sustainable Future." Discussions focused on topics such as market shifts driven by geopolitical conflicts, pathways for industrial transformation, and the development of a circular economy. Experts noted that disruptions to international crude oil and naphtha shipping routes caused by the conflict in the Middle East—and the resulting feedstock shortages—are compelling the Asian petrochemical industry to restructure its development landscape. Accelerating the diversification of feedstock sources and vigorously developing a circular economy have become essential strategies for the industry to mitigate risks and pursue long-term growth.

The Strait of Hormuz is a critical hub for the global transport of energy and chemical feedstocks. According to Stefano Zehnder, Vice President of Consulting at ICIS, over 45% of global naphtha and approximately 35% of liquefied petroleum gas (LPG) passed through the strait in 2025. Asia relies heavily on Middle Eastern naphtha transiting this route, with 60% of its supply coming from the region; specifically, 76% of this Middle Eastern naphtha is sold to Northeast Asia, while 23% supplies South Asia and Southeast Asia. This highly concentrated import structure has left the Asian petrochemical industry extremely vulnerable to the current crisis.

Alex Lidback, Vice President of Chemical Analysis at ICIS, analyzed the situation to forecast oil price trends and economic impacts under various scenarios. If the Middle East conflict escalates further and global supply chains suffer a total collapse, Brent crude prices could surge to between $175 and $225 per barrel, triggering a global recession that might persist until 2027. If shipping through the Strait of Hormuz resumes by the end of August, oil prices would likely stabilize between $125 and $150 per barrel; however, if a peace agreement is reached by the end of the second quarter, prices could fall back below $100 per barrel. He noted that the longer the conflict persists, the more prolonged the market recovery cycle will be; the risk premium in the crude oil market is likely to persist through 2026, only gradually subsiding in 2027. Prolonged instability could also lead to the delay, suspension, or even cancellation of petrochemical projects, permanently altering the landscape of Asia's petrochemical industry. In contrast, the North American market—leveraging domestic ethane and natural gas resources—has been less affected by global supply chain disruptions and holds a distinct advantage in this crisis, highlighting a clear divergence within the global petrochemical industry.

Even before the Middle East conflict erupted in February 2026, Asia's petrochemical industry was already grappling with structural overcapacity. Bala Ramani, Vice President of Consulting for Asia-Pacific at ICIS, stated that between 2021 and 2025, Asia consolidated or phased out approximately 24 million tons of inefficient petrochemical capacity, primarily in Northeast Asia.

Following the escalation of the conflict, shipping disruptions in the Strait of Hormuz further exacerbated the feedstock crisis. Since March of this year, numerous Asian steam crackers reliant on Middle Eastern naphtha imports have faced operational hurdles, with several companies declaring *force majeure*. Approximately 22% of Northeast Asia's steam cracking capacity has been idled or is operating at reduced rates. Integrated refining-petrochemical enterprises have managed to maintain production thanks to captive feedstock supplies, whereas independent steam crackers—lacking such resilience—have suffered more severe impacts. Estimates suggest that global petrochemical output could contract by 6% to 9% due to supply chain disruptions.

The operating environment for Asia's petrochemical industry is becoming increasingly complex; while short-term feedstock shortages may temporarily boost corporate profits, they fail to resolve the fundamental issue of overcapacity. Consequently, industry stakeholders are calling for accelerated capacity consolidation, industrial structure optimization, and enhanced production flexibility. On one hand, the industry urgently needs to reduce its reliance on Middle Eastern naphtha, diversify feedstock sources, adopt multi-feedstock production technologies, and strengthen the ability to switch feedstocks. On the other hand, the crisis has fully exposed the drawbacks of "low-inventory" operating models, prompting an urgent need for companies to adjust their warehousing strategies and establish reasonable safety reserves for feedstocks. As the supply of traditional feedstocks faces pressure, alternative sectors—such as circular chemicals and bio-based feedstocks—are seizing new growth opportunities. Helen McGeough, an analyst specializing in plastics recycling and sustainability at ICIS, notes that bio-based feedstocks not only bolster supply chain security but also assist companies in meeting carbon reduction targets and regulatory compliance requirements. Driven by rising feedstock costs, recycled plastics have seen improved profit margins and increasingly prominent advantages regarding supply stability, making them a key strategic option for the long-term development of Asia’s petrochemical industry.

However, the global recycling industry still confronts numerous practical challenges. Many international brands have failed to fulfill their sustainability commitments for 2025, and the majority of recycling enterprises are struggling with operational pressures and profitability issues. Meanwhile, inconsistent regulations and standards across Asian nations, along with regional barriers, hinder the industry's collaborative development. Although Europe has introduced legislation regarding the circular economy and packaging waste—driving up market premiums for high-quality recycled materials—these measures have also raised the barriers to entry. Furthermore, issues such as policy uncertainty, a shortage of high-quality waste plastic feedstock, and a tightening investment and financing environment continue to constrain the industry's efforts to scale up operations.

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