Efficient closure of the Strait of Hormuz has stranded exports from Iran, Iraq, Kuwait, Bahrain, Saudi Arabia, UAE and Qatar
The Strait of Hormuz rapidly became a choke point for energy and chemicals trade from the Middle East after the United States and Israel went to conflict with Iran. During a quarter of all seaborne oil and a fifth of liquified natural gas (LNG) has exceeded via this narrow passage among Iran and Oman in recent years.
At its narrowest it is 40km wide, with a maritime lane of around 4km, and the battle has successfully shut it to shipping. This stopped 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.
‘Around 12–14 million barrels a day of crude oil transfers via the Strait of Hormuz, plus about 4-million barrels of refined products, approximately a million barrels of LPG, a million barrels of naphtha and 1.2 million barrels of jet and diesel fuels merged,’ stated Alan Gelder, market analyst at Wood Mackenzie.
The volume is reclaimable if other regions ramp up rapidly, however […] the potential for short-time period variability is very high
Around 80% of oil shipped via the strait in 2025 turned into heading to Asia, with liquefied petroleum fuel (LPG) and naphtha generally exported to Asia and liquid fuels to Europe. Oil expenses tracked upwards, alongside precursor chemicals for plastics and other materials.
Hundreds of tankers and box ships, many transporting liquid hydrocarbons and chemicals, are stalled in the gulf either side of the strait. Asian chemical manufacturers are particularly prone, with China more defendant on the Middle East for feedstocks following latest trade disputes with the US. ‘Asia makes use of naphtha to manufacture a lot of commodity chemicals that move into plastics consisting of polyethylene, polypropylene and ethylene glycol,’ stated Joseph Chang, editor of Chemical Business at market research corporation ICIS .
The Middle East also exports plastics and chemicals, inclusive of more than 12.5 million tons of polyethylene (PE), 14 million tons of methanol and 6.5 million tons of monoethylene glycol (MEG) in 2025, many of it destined for China, wider Asia and the EU, as per ICIS. ‘The market for MEG is systematically
oversupplied, but Middle East assets have a feedstock benefit and are running above 80% [capacity] on average,’ stated Mariana Santos Moreira, analyst at OPIS Chemical Market Analytics.
China is the largest customer of MEG and could confront vital shortages. Loss of gulf MEG would also effect India, Indonesia, Pakistan, Vietnam and Thailand. A report from Chemical Market Analytics expects that Asian buyers will look for cargoes from the US Gulf Coast, which may also drive prices back up in an industry that have been struggling with oversupply and deep discount. ‘Some of [Asia’s] other manufacturing plant make propylene and polypropylene from propane,’ stated Chang. ‘There will be less propane available and those prices will go up.’
Some manufacturers outside the Middle East might not need to fill the gap till there is a price incentive to do so
Around 15% of polyethylene and polypropylene manufacturing around the Persian Gulf will probably be disrupted (over 30% of global trade volumes come from the Middle East). ‘The quantity is reclaimable if other regions ramp up fast, but supply chains will need time to adjust, so the potential for short-term volatility is very high,’ As per the Chemical Market Analytics report. With naphtha from the gulf close off, petrochemical manufacturers ‘will require to cut [manufacturing] or even shut their crackers as feedstocks are probable to dry up in about 4 weeks or less,’ ICIS reported.
Overcapacity has kept global working rates at traditional lows across many products, and it takes time to scale manufacturing or adjust supply chains. ‘We want to maintain in thoughts that some manufacturers outside the Middle East might not need to fill the gap until there’s a price incentive to do so,’ stated Santos Moreira. For now, polymer manufacturing in the Persian Gulf persist and there has been no damage to manufacturing websites. Given that the war end fast, manufacturers elsewhere else will tread cautiously instead of going to the expense of opening facilities that may then not be required. Moreover, some Asian countries are already stopping exports of some chemical substances to retain supplies.
European crackers can be hurt by using higher feedstock prices. ‘For an average steam cracker [in Europe], feedstock counts for 70 to 80% of expenses. That means European crackers will take a massive hit,’ says Mohamed Chilmeran, market analyst at Wood Mackenzie. European crackers can also scale, but in the end they might be derailed by feedstock availability. Without Middle East exports ‘there’s in simply not sufficient hydrocarbon liquids to meet global demand,’ stated Gelder.
If the warfare expands to the extent that it damages energy or petrochemical facilities, then the story change
Gas charges rapidly surged in Asia and Europe. Almost all of Qatar and UAE’s LNG trade exits via the strait, with no optional route to market. Asia get 90% of those exports, with 10% going to Europe. European jet fuel costs increased, because the location relies on imports from the Middle East. Chemical manufacturers that use gas for technique heating have also reportedly started adding fuel surcharges to present contract prices for some chemicals in response to gas rate increases.
Chilmeran, who is primarily based in Saudi, isn’t always aware of reductions in running costs at chemical plants in the Middle East. ‘I would anticipate in 10-days to 2 weeks they would both begin reducing working costs or begin announcing force majeure or even shutdown operations,’ he stated. There are storage centers for oil and gas, however less for chemicals, which might be typically just exported directly.
Wider economic effects are anticipated. It is evaluated that a quarter of nitrogen fertilizer is shipped via the Strait of Hormuz, with around 15 million tons exported each year as urea and ammonia. ‘Food prices will begin to rocket as fertilizer exports get hit. This isn’t just an oil but a global economy story,’ says Gelder.
There could beneficiaries. ‘The US and Canada could be huge winners,’ says Chilmeran. North America has lower feedstock values, giving an benefit in glycols, polymers and other chemicals. An uncertain future, but, and the background of sustained oversupply, method that they could be reluctant to scale manufacturing.
The war could yet be resolved rapidly or it could to boost. Initially, logistical difficulties were in target and there has no longer been sustained focused on of petrochemical plants. Nevertheless, on 4th March, QatarEnergy stated it can’t fulfil gas contracts due to assaults on its facilities. Bahrain stated on 5th March that a fire broke out at its Bapco Energies refinery after an Iranian missile strike. ‘If the warfare spreads to other Middle Eastern countries to the extent that it damages energy or petrochemical centers, then the story changes,’ says Santos Moreira.
