As the war in the Middle East enters its fourth week, fighting has continued unabated in many parts of the region over the last couple of days. Despite suggesting on March 20 that he is thinking about winding down the war, U.S. President Donald Trump has since threatened that U.S. forces will attack and destroy Iran’s power plants if the Strait of Hormuz is not reopened for all vessels. Meanwhile, the Pentagon has reportedly asked the White House to approve a request to the U.S. Congress for more than $200 billion (€172 billion) in additional funding to finance the war against Iran.
Israel Katz, the Defense Minister of Israel, confirmed that Israeli troops have been ordered to destroy more bridges and buildings in southern Lebanon as part of its military offensive against the Lebanon-based militant group Hezbollah. According to the Lebanese government, more than a million people have been displaced by the offensive, while around a thousand people have been killed so far.
In response to President Trump’s ultimatum, a representative of the Iranian government warned that Iran will target critical infrastructure as well as oil and energy facilities across the Middle East if any of its power plants are attacked. Iran threatened that, in the event of a successful attack on its power plants, the Strait of Hormuz would remain closed until all facilities are repaired.
On March 23, President Trump wrote on social media that the 48-hour deadline to strike Iran’s power plants has been postponed for five days following what he called productive talks with Tehran, but no further details about the talks were disclosed. Iran also fired missiles at several countries across the region in recent days, including Israel, Saudi Arabia, and the United Arab Emirates. In Israel alone, more than a hundred people have been injured in the most recent strikes.
Raw materials shortages increasingly disrupt global chemical industry
With the war about to enter its fourth week, shipping traffic through the Strait of Hormuz remains halted to all but a very limited number of vessels. According to estimates, around 5% of the pre-war number of vessels have been allowed to transit the waterway, mostly from countries whose governments are considered friendly by authorities in Iran, including vessels from China, India, and Pakistan. More than a hundred product tankers, roughly 5% of the total global fleet, are estimated to remain stuck in the Gulf region due to the conflict.
As ocean carriers remain unable to move energy products and raw materials, the operational impact of supply shortages is intensifying in manufacturing industries such as plastics making and fertilizer production. Prior to the conflict, the Middle East supplied around 45% of seaborne naphtha, as well as 23-30% of other crucial plastic inputs, such as methanol, styrene and polyethylene. Countries in the region also account for nearly half of all global seaborne sulfur supply, around a third of global urea and almost a quarter of ammonia exports, all crucial ingredients in the fertilizer industry.
In Japan, a number of chemical companies have curtailed production due to disruptions to naphtha supply from the Middle East. Since the beginning of March, Everstream Analytics has tracked production reductions at major chemical companies such as Idemitsu Kosan Co., Ltd., Mitsui Chemicals, Inc., and Mitsubishi Chemical Group, all of which have reduced ethylene production at plants across Japan in response to naphtha shortages. Tosoh Corporation and Keiyo Ethylene (Chemiway) Co., Ltd. postponed the restart of ethylene facilities in Japan due to the growing naphtha shortages. Production had been scheduled to resume from April and March respectively following planned maintenance work. Japan normally receives around three quarters of its naphtha imports from countries in the Middle East.
Amid worsening supply shortages, the Government of South Korea announced that naphtha will temporarily be designated as an economic security item, which will enable companies to receive support from the government to stabilize supply chains. South Korean authorities are reportedly planning to provide around ₩ 1.5 trillion ($1 billion / €870 million) in financial assistance for affected companies to cover additional costs such as higher prices from alternative suppliers. Additionally, the South Korean government expanded export restrictions, which initially only applied to gasoline, diesel, and kerosene, to naphtha exports. Authorities are also said to be in discussions about buying crude oil and naphtha from Russia again after some economic sanctions on the country were eased in response to the crisis in the Middle East. Refineries in South Korea usually export around 300,000 tonnes of naphtha per month, mostly to other countries in Asia. At the same time, companies in South Korea import around two million tonnes of naphtha from abroad, with around half of all imports moving through the Strait of Hormuz.
The impact of raw material shortages is also worsening in the chemical industry in other parts of the world. Germany-based BASF SE, one of the biggest chemical producers in the world, announced last week that it will raise prices of many of its products in Europe by up to 30% with immediate effect. The increase reportedly affects products in the company’s home care, industrial and institutional cleaning, and industrial formulators segments. The company cited volatility in the pricing and availability of key raw materials, rising logistics costs at home and abroad, as well as higher packaging and energy costs as the main drivers of the price hike.
Concerns are also growing in the global fertilizer industry due to energy and raw material supply disruptions, with the supply of nitrogen-based as well as phosphate-based fertilizers increasingly under threat.
In response to energy shortages, authorities in India issued a directive that gave the fertilizer industry second-priority status and limited gas supply to the sector to around 70% of its average needs. Estimates suggest that the directive might cause a drop of 800,000 tonnes in domestic urea production per month. Bangladesh was forced to shut down production at four of the country’s five fertilizer factories less than a week after the conflict started due to natural gas shortages. China, which imports around 25-30% of its liquefied natural gas (LNG), around 45% of its crude oil, and roughly half of its sulphur from countries in the Middle East, is reportedly planning to restrict fertilizer exports to protect domestic supply. China exported more than $13 billion (€860 million) worth of fertilizer last year and is among the world’s biggest exporters.
Fertilizer supplies could also start running out in countries outside of Asia in the coming weeks. Domestic stockpiles in Australia, which imported more than half of its urea supply from the Middle East last year, are expected to last until mid-April. Brazil, the world’s largest soybean producer, imported almost all of its urea supply from Qatar and Iran prior to the crisis. By mid-March, the country’s agricultural minister warned that Brazil could face fertilizer shortages if the conflict continues and criticized sellers for the sharp increase in domestic urea prices following the outbreak of war in the Middle East. In the U.S., the American Farm Bureau Federation reportedly asked the U.S. government to suspend duties on fertilizer imports from Marocco to alleviate some of the pressure in the market. The duties, which were imposed in 2021 following an investigation by the U.S. Department of Commerce, are currently under review but it wasn’t immediately clear when a decision might be announced.
Fuel shortages persist in many Asian countries and begin to impact global aviation industry
While countries in Asia remain among the worst affected by intensifying fuel shortages, supply disruptions are also starting to spread to other parts of the world, with a growing number of governments in Europe announcing emergency measures to protect domestic fuel supplies and prevent panic-buying at petrol stations. With shipping through the Strait of Hormuz largely halted, the number of countries affected by fuel shortages is likely to increase further in the coming weeks if no resolution to the conflict is found.
The shipping disruptions through the Strait of Hormuz are also increasingly threatening to disrupt the global aviation industry, not just because major international airports in the Middle East were forced to close or operate at limited capacity due to drone and missile strikes. According to estimates, around 20% of the world’s jet fuel supply normally passes through the Strait of Hormuz. Fuel expanses are typically the second highest cost factor for airlines after labour-related costs, usually accounting for around a fifth to a quarter of an airlines’ operating costs.
As supply dries up, authorities in Vietnam have warned that the country’s kerosene supplies could run out in April. Vietnam imports more than two-thirds of its jet fuel supply, with around 60% coming from China and Thailand, both of which halted fuel exports in early March to protect domestic reserves. U.S.-based airlines are also said to be particularly exposed to price hikes because many airlines in the U.S. stopped hedging fuel costs years ago. According to a recent estimate, Delta Air Lines, American Airlines, Southwest Airlines, and United Airlines could face around $5.8 billion (€ 5 billion) in additional fuel costs if jet fuel prices remain elevated until the end of the year. The four airlines account for around 74% of U.S. flight capacity.
In preparation for rising fuel prices, some airlines have started to cut flight schedules. Air New Zealand and Scandinavian Airlines System, the joint flag carrier airline of Denmark, Norway, and Sweden, have already cancelled more than a thousand flights each in the coming weeks. Finland’s flag carrier Finnair Plc hasn’t cancelled flights yet but has warned that jet fuel supplies could run out if the Straif of Hormuz remains closed. Other airlines, such as Air France–KLM, have floated the idea of cancelling flights to destinations with a less stable fuel supply if the crisis continues.
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