The geopolitical turmoil in the Middle East is putting growing pressure on a key but often overlooked pillar of the global economy: the petrochemical industry. Asia, which relies heavily on supplies of liquefied petroleum gas (LPG), naphtha and methanol from the Gulf region, is already experiencing the first shockwaves of the crisis. Limited inventories are colliding with rapidly rising feedstock prices, increasing cost pressures and exposing the structural vulnerability of Asian petrochemical producers to disruption in the Middle East.
The crisis is no longer confined to energy: it is spreading up the entire industrial chain. With 60 to 70% of Asian naphtha1 passing through Hormuz, a prolonged disruption could redefine flows, costs and, perhaps, the very geography of the global petrochemical industry.
Joe Douaihy, sector economist, Coface.
Petrochemicals: Asia at the epicenter of the geopolitical shock
Escalating tensions in the Middle East and disruptions around the Strait of Hormuz are driving sharp volatility across global energy and chemicals markets. The region plays a critical role in supplying essential petrochemical feedstocks, including crude oil, naphtha, liquefied petroleum gas (LPG), methanol and other key raw materials that underpin worldwide chemical production.
For Asian petrochemical producers, this reliance on Middle Eastern supply is structural. An estimated 60 to 70% of their naphtha and around 45% of their LPG imports originate from the region. As a result, Asia is the first to feel the full impact of geopolitical instability, with tightening supply chains and rapidly rising prices putting immediate pressure on production costs, operating margins and market stability.
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The current tensions are unfolding against a backdrop of weak end‑market demand, particularly in the construction and automotive sectors, combined with persistent overcapacity in China’s chemical industry. At the same time, Asian petrochemical producers — notably in South Korea and Japan — structurally operate with very low inventories of key feedstocks such as naphtha and liquefied petroleum gas (LPG), typically enough to sustain production for only a few weeks. As supply risks intensify, naphtha stocks are being depleted at an accelerated pace, forcing producers to scale back output and increasing pressure on regional petrochemical supply chains.
The Gulf: a strategic upstream pillar of the global chemical value chain
The Middle East occupies a vital upstream position in the global petrochemical value chain. Beyond crude oil, the Gulf region exports massive volumes of naphtha and liquefied petroleum gas (LPG), two critical feedstocks for Asian steam crackers. These facilities underpin an extensive downstream ecosystem, supplying plastics, composite materials, solvents, synthetic fibers and cosmetics. The Strait of Hormuz serves as a key maritime chokepoint, channeling the majority of these flows toward major industrial hubs in China, South Korea, Japan and Thailand.
Methanol is equally strategic to the region’s influence. Iran and the GCC countries² provide most of the methanol volumes consumed by China’s MTO (methanol‑to‑olefins) units, which account for around 20% of the country’s total olefin output. Olefins — including ethylene, propylene and butadiene — are the fundamental building blocks of the global chemical industry. To mitigate supply risks, China has already begun ramping up coal‑based methanol production, despite its higher environmental footprint.
Early impacts: mounting margin pressure and production shutdowns
The first concrete signs of disruption are now materializing. Several Asian refiners have started to reduce operating rates, while major petrochemical producers — such as Yeochun NCC in South Korea and PCS in Singapore — have declared force majeure. These companies cite external conditions that are disrupting operations and preventing them from maintaining normal business activities, particularly in meeting contractual supply obligations.
In parallel, orders for polyethylene and polypropylene have been suspended across multiple markets, signaling a rapid tightening of available supply. Even if geopolitical tensions prove short‑lived, restarting petrochemical units after throughput reductions remains complex and costly. As a result, the impact on global petrochemical markets could persist well beyond the immediate period of instability.
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A potential reshaping of the sector: winners, losers and new market balances
If the crisis continues, the structure of the global petrochemical sector could undergo a significant realignment.
- United States: emerging as potential winners due to structurally low ethylene production costs. This cost advantage could allow US producers to expand exports to Asia and strengthen their position in global petrochemical trade.
- China: highly diversified and able to pivot toward coal‑based alternatives. Coal enables the direct production of chemicals through CTO (Coal‑to‑Olefins), albeit with a high CO₂ footprint. It is also used to produce methanol, which supplies China’s MTO (Methanol‑to‑Olefins) units. However, methanol imports still largely originate from the Middle East, where prices are surging amid geopolitical tensions.
- Europe: facing a fragile outlook, constrained by elevated energy costs and limited flexibility to pass higher prices on to customers. This leaves European producers particularly exposed in a volatile global market.
- India: a potential outperformer, provided it can increase output using Russian crude oil. Its favorable geographic position could further support its role as a supplier to fast‑growing Asian markets.
1 Naphtha is a liquid blend of light hydrocarbons — molecules made up of small numbers of carbon and hydrogen atoms. Produced mainly through crude oil refining, it is a key feedstock for the petrochemical industry.
2 The Gulf Cooperation Council (GCC) is a political and economic alliance of six Arab Gulf states: Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Qatar, Bahrain and Oman.
