Ongoing conflicts in the Middle East, particularly in the Strait of Hormuz, are causing significant disruptions to petrochemical supply, leading to a global surge in plastic and polymer prices. Manufacturers face higher input costs and reduced margins.
Understanding the surge in plastic prices and polymer costs
Disruptions to crude oil and petrochemical transfers through the Strait of Hormuz, following the war in Iran, have reduced the global supply of chemicals and pushed plastic and polymer prices upwards.
According to Rabobank, the escalating conflict is contracting the availability of resins, driving up polyethylene and polypropylene prices, highlighting how packaging costs are now closely linked to global security risks. An estimated $20 to $25 billion worth of petrochemical products transit through the Strait of Hormuz annually.
Plastic prices follow crude oil trends
Prices for plastics like polyethylene (PE) and polypropylene (PP) have increased since the start of the conflict, following the rise in crude oil and raw material and fertilizer costs. “Up to 50% of polyethylene supply is halted, restricted, or impacted by ongoing events in the Middle East,” Jim Fitterling, CEO of Dow, told Reuters. LSEG data shows the war has pushed Asia’s naphtha refining margin to over $400 per ton compared to Brent (it was nearly $108 before the war).
Europe and Asia depend on imports from the region for 10%-20% of their polyethylene and polypropylene needs. The conflict limits the supply of fundamental raw materials for chemical production, such as naphtha, sulfur, and methanol. The persistent closure of routes will likely lead to production reductions, due to high dependence on Middle Eastern feedstocks. This will also fuel global cost inflation, particularly for naphtha-based chemical capacity.
Plastic producers in Asia and Europe are therefore facing higher input costs and reduced margins. Paolo Scafetta, a senior analyst at ICIS, explained: “Almost 6.45 million barrels per day of capacity depend on the Strait of Hormuz”.
European polyethylene and polypropylene players have had to contend with an increasingly chaotic market since the conflict began. Spot and contract prices strengthened after hostilities erupted, but market sentiment accelerated in the second week of the war, as it became clear the situation was unlikely to resolve quickly.
Naphtha prices are driven primarily by crude oil. As a fundamental petrochemical feedstock, naphtha remains tightly linked to crude oil price movements, particularly export flows from the Middle East. Fears of an “April chain blockage” are growing in the industrial sector for petrochemical and refining industries. Japan and South Korea appear to be the most vulnerable countries.
ICIS estimates suggest that almost 4 million tons of naphtha transit through the Strait to Asia each month, with approximately 1.2 million heading to South Korea and about 900,000 to Japan. “Alternative sources to replace naphtha and LPG from that region are very limited and short-lived,” Scafetta clarified.
Industry margins and profitability
Lower production could favor the margins of producers less affected by the conflict if it manages to reduce the oversupply that has challenged the industry’s profitability since 2023. This oversupply is the main factor in Fitch’s “deteriorating” outlook for the global chemical sector in 2026. However, the overall effect on margins will also depend on the impact on global demand, which will likely weaken significantly if Hormuz remains closed and energy prices stay high for several months, Fitch further explains.
The ability of chemical companies to maintain production and quickly pass on cost inflation to customers will be crucial for preserving cash flows, in a context where many already have high indebtedness.
Rising polymer costs: Stress test for China
As emerged from the World Petrochemical Conference (WPC), organized by S&P Global in Houston from March 23 to 27, rising raw material costs following the conflict in Iran are set to alter global trade flows. China has strengthened its competitive cost position in polymers like polypropylene, polyethylene, and polyvinyl chloride (PVC) through capital expenditure (CAPEX) efficiency, economies of scale, and raw material diversification.
In contrast, other global naphtha-dependent producers are heavily affected by pressures stemming from the Iran conflict. “China builds large refineries and integrated petrochemical complexes at the lowest capital cost in the world,” said Shaohua Feng, APAC polymers director at S&P Global Energy CERA. “This competitive advantage drives China’s market position.”
However, due to the war in Iran, China also faces higher raw material costs. This limits the possibility of achieving higher margins despite the global supply shock caused by the hostilities, which is indeed pushing polymer prices upwards.
Increased protectionism
As China achieves self-sufficiency, other global exporters are forced to sell into smaller emerging markets, such as Vietnam, Turkey, Indonesia, India, Malaysia, and Mexico. In these markets, antidumping measures are emerging, aimed at protecting local producers. “China’s rise is fueling protectionism in other countries, a factor we now consider part of our baseline scenario,” Feng added.
