Zhenghao New Materials

The war in the Middle East has the potential to impact certain chemical supply chains significantly, depending on how long the conflict lasts, according to chemical analysts at S&P Global Energy CERA.

Some value chains are already being impacted by the closure of Iranian capacity in the first instance, others will be impacted by the closure of assets in the Gulf Cooperation Council (GCC) countries through the ongoing retaliation, and some markets will only be impacted directly if the Strait of Hormuz is closed for any substantial length of time, CERA chemical analysts said in a detailed report published March 3. There could also be wider indirect impacts depending on how global demand is affected by macroeconomic impacts or by the restriction of feedstock supply chains directly or indirectly, such as NGLs restrictions due to LNG constraints, according to the analysis.

At this stage, there are few chemical assets confirmed offline, according to CERA. There is limited traffic moving through the Strait of Hormuz, so tankers and vessels are waiting for the risk of attack from Iran to subside before passing, it said.

“At this point, we have looked at the potential impact of asset closures on global markets,” the report said. “Most chemical markets are oversupplied right now so have room to accommodate smaller restrictions in capacity. However, if the Strait was to close for any extended period, then markets would tighten up, all other things being equal. This may not be the case if the conflict negatively impacts markets, sentiment, and manufacturing.”

CERA chemical analysts looked at markets in the context of Iranian capacity; Persian Gulf or GCC capacity that would need to be exported through the Strait of Hormuz, which is impacted by its closure; and GCC capacity in total, which could also be impacted by retaliatory strikes.

Olefins

Iran has 7.9 million metric tons/year of ethylene capacity, according to CERA data. Operating rates at Iran’s steam crackers have declined from about 80% pre-pandemic to just below 70% in recent years owing largely to sanctions, the CERA analysis said. About 80% of Iranian ethylene is produced from ethane, and monomer exports have been negligible because sanctions have restricted demand, it said.

Iran is net short on propylene, and it uses a propane dehydrogenation unit to meet domestic demand. While monomer trade is unlikely to be affected, there are potential impacts on derivatives such as polymers and glycols, according to CERA. China and India are among the most affected counterparties, it said.

“It is likely that all Iranian crackers have been shut down as a precautionary measure based on the Iranian response to the last attack [in 2025] from Israel,” CERA analysts said. “We have not seen any indication that chemical facilities have been targeted, but there have been attacks near chemical production facilities such as Tabriz. With the Strait of Hormuz effectively closed off, there is no ability to export any products — either by Iran or any of the countries above the Strait. We expect that many assets in the Persian Gulf will delay closing for a few days as they monitor the situation; however, there will be a limit to how long they can produce before storage becomes an issue, and there is no incentive to build inventory.”

The global impact on olefins will depend on the duration of the crisis, according to CERA. Oil and natural gas prices will be higher as oil, refined products and LNG trade will be affected, it said. Higher feedstock and fuel prices will raise production costs.

Meanwhile, China’s methanol-to-olefin (MTO) producers will suffer from a lack of methanol, because China likely imports about 60% of its methanol feedstock from Iran, according to the analysis. “Because global olefin operating rates are relatively low owing to the extended margin trough, derivatives demand can likely be met if consumers are willing to pay higher prices for production outside the Middle East,” it said.

Polymers

Iran operates a total of 21 polyethylene (PE) assets with approximately 4.8 million mt/y of nameplate capacity, establishing it as a significant producer of PE with roughly a 3% share of global output, according to CERA data. It exported more than 3 million mt of total PE in 2025, with China receiving about 56% of that volume and Turkey a distant second importer, the data showed.

For polypropylene (PP), Iran’s total capacity is a little over 1 million mt/y, which is about 1% of global nameplate capacity, but export volumes remain limited because most PP is consumed regionally with only minor shipments outside the region, according to CERA data. The country’s domestic petrochemical infrastructure and export capabilities are currently “under extreme duress” amid the ongoing conflict, and any prolonged disruption to Iranian production or ability to export could tighten global PE supply, particularly to the Middle East and China, the report said. The impact to global PP supply due to Iranian supply disruption would be small, however, it said.

Outside Iran, several regional ports are facing operational disruptions, including the port of Jebel Ali in the UAE — an important export hub for polyolefins produced by Borouge PLC, CERA analysts said. Sustained disruption around the Strait of Hormuz would severely impact PE and PP supply chains, given that Middle East producers in the Persian Gulf collectively account for about 25% of global exports of PE and PP, the report said.

The port of Jebel Ali, a major polymer export hub for the GCC, has faced interruptions due to the regional conflict, highlighting the vulnerability of export infrastructure, according to the CERA analysis. South Asia and Africa are primary destinations for PP exports from the Middle East, and China and India remain top markets for PE, it said.

Asian polymer markets are already experiencing indications of tightening supply, shipment delays and rising prices, according to the CERA analysis. Coupled with escalating crude oil and feedstock costs, these disruptions are expected to drive polymer prices even higher, it said.

“To offset a sustained restriction in supply of polymer out of the Middle East, importers would likely increase purchases from North America and other Asian producers while trying to maximize domestic supply,” CERA analysts said. “On the pricing side, we are anticipating both PE and PP prices to increase over concerns of supply shortages and the anticipated higher feedstock prices due to higher crude oil prices.”

Ethylene glycol

Historically, Saudi Arabia and Kuwait — together with Iran — have played a significant role in global monoethylene glycol (MEG) supply, reflecting the commoditized nature of MEG and the cost advantage of ethane-based ethylene production in the region, according to CERA. As a result, regional conflict can have implications for the global MEG market, it said.

Recent capacity growth in China, however, has reduced the relative importance of these producers. The combined 10.8 million mt/y of nameplate MEG capacity in these three countries now accounts for about 17% of global capacity, down from about 25% at the start of the decade, according to CERA data.

With limited domestic consumption and China established as the global hub for polyethylene terephthalate (PET) and polyester production, almost all Middle East MEG output is exported, mainly to Asia, the analysis said.

About 8.5 million mt/y of this regional MEG capacity, or 79%, is located in the Persian Gulf, meaning most exports transit the Strait of Hormuz, according to CERA. About 69% of Saudi Arabia’s 7.4 million mt/y footprint is exposed to this route, while it is the only maritime export option for Kuwait, which has 1.5 million mt/y, and Iran itself, with 1.9 million mt/y, it said.

“Significant disruption to the strait would essentially shut down the MEG industry in the Persian Gulf, leaving Saudi Arabia’s Red Sea facilities as the only viable capacity in the region,” the report said.

From a global supply-demand perspective, however, this “most-at-risk capacity” represents 14% of global capacity, according to CERA. “With global MEG operating rates at around 66%, the industry has enough alternative sources to remain fully supplied,” the report said.

The impact on pricing, however, could be more noticeable. China — whose CFR spot price has most influence on global pricing — imported approximately 5 million mt of MEG from these countries in 2025, about a quarter of total Chinese demand and two thirds of its total imports. “With US Gulf Coast MEG exports to China remaining subdued in the wake of trade tensions in 2025, any near-term shortfall would likely be met by higher-cost Chinese naphtha-based production,” according to the CERA analysis.

Vinyls and inorganics

There is a relatively small volume of vinyl and chlor-alkali capacity located in Iran in comparison with global capacity, and this is “certainly” the case for the wider GCC, so the impact of closures will be smaller than in many other chemical value chains, according to CERA’s analysis. The “biggest losers” are Asian exporters — notably China, the largest exporter to the GCC region, and South Korea to a lesser extent — because their most direct route to core GCC buyers — UAE, Kuwait, Qatar, Bahrain — typically requires entry via the Gulf through Hormuz, it said.

The US also loses a key seaborne outlet into the Gulf, according to CERA. “Relative winners” are Mediterranean and nearby exporters in Western Europe, such as Germany, France, Belgium and the Netherlands because they can still serve Turkey and the Levant via Mediterranean routes and may gain share as regional buyers pivot away from Persian Gulf delivery, according to the analysis. Turkey imported more than 1 million mt of polyvinyl chloride in 2025, according to CERA data. Turkey-based redistribution may also support nearby European suppliers, it said.

Aromatics and derivatives

Iran has a developed, largely self-contained aromatics industry, according to CERA. Aromatics capacity is focused on para-xylene and styrene production feeding polyester and expandable polystyrene, which primarily provide for domestic requirements, it said. Capacity is primarily concentrated in the ports of Assaluyeh and Bandar Imam Khomeini.

“Aromatics feedstocks can be diverted from petrochemical uses to gasoline, and should Iran’s gasoline supply be impacted, this could result in lower production of petrochemicals in the country,” according to the analysis. “Reduced production of aromatics and derivatives in Iran will have minimal direct impact on global markets.”

Production or trade limitations for the wider GCC region could have significant impact, particularly on p-xylene and styrene, according to the analysis. The region is an exporter of p-xylene, with approximately 1.5 million mt/y of merchant capacity located inside the Persian Gulf, which usually flows to the Americas, Europe and Asia, according to CERA data. “There could also be broader knock-on impacts to production if feedstock supplies to major Asian aromatics producers are impacted,” it said.

Due to advantaged ethylene and energy costs, the Middle East accounts for more than 20% of global styrene trade, all of which passes through the Strait of Hormuz, primarily feeding Indian and European import markets, according to CERA’s analysis. India also exports smaller volumes of benzene to the Middle East, most of which is consumed to make styrene, it said.

“Significant delays in styrene exports from the region will positively impact styrene production margins,” the report said. “At present, no aromatics units are known to be directly impacted by the conflict.”

Methanol

The Middle East conflict has had an immediate impact on methanol markets and could have broader implications, according to CERA analysts. Iran is the second-largest country in terms of methanol nameplate capacity, with 17.2 million mt/y and 12 units representing 12% of global methanol capacity, CERA data showed. Iran is also the largest exporter of methanol, with 10 million mt/y of exports expected in 2026, or 25% of global trade.

Besides Iran, the GCC region is “critical” to methanol, and supply disruption through the Strait of Hormuz could impact plants located in Saudi Arabia, Qatar and Bahrain, according to CERA’s analysis. These four countries account for 18% of global methanol capacity and 39% of global methanol exports, it said.

China and Japan, as well as India, are the main trading partners for methanol from Iran, and Saudi Arabia and Qatar are expected to be the most impacted countries in the short term. Europe is a large importer of methanol but is not expected to be directly impacted by the situation, with limited flows reported from the Middle East and the Atlantic Basin structurally long, according to CERA’s analysis. “Considering the situation, both Europe and the Americas are expected to be only indirectly impacted,” it said.

Acetic acid and methyl tert-butyl ether (MTBE) are the two other derivatives of methanol expected to be primarily impacted, according to CERA. “Although Iran is neither a big producer nor a large exporter for these products, production facilities in Saudi Arabia and in Qatar are expected to be impacted by supply disruptions and their ability to export,” it said. “Similarly, tightness in methanol supply and delays in shipments could impact downstream customers at main partner countries.”

The longer the situation lasts, the more challenging it will become for methanol producers to operate safely and manage inventories for liquids with physical limits in tanks and exports, according to CERA analysts. “We expect some units to shut down, if they have not done so already,” it said.

Currently, methanol facilities located in Oman and downstream facilities located on the west coast of Saudi Arabia are expected to be relatively safe. However, curtailments in gas operations in Israel and delivery to Egypt could impact methanol production and exports in the country, the CERA report said.