Market and product

Geopolitical tensions in the Middle East surged over the weekend. Multiple trading sources reported on February 28 that following U.S. and Israeli strikes against Iran, Tehran announced the closure of the Strait of Hormuz shipping lane. Several tanker owners and traders have suspended crude oil, fuel, and liquefied natural gas shipments through the strait.

This unexpected development swiftly disrupted global energy and chemical markets. International oil prices surged at today's opening, with Brent crude's front-month contract briefly climbing to $82.37 per barrel. As of press time, it remained up over 7%.

Market analysts noted that the core driver of current trading is geopolitical risk premiums, with divergent impacts across commodities. Crude oil, methanol, liquefied petroleum gas (LPG), and other products will face significant shocks, while China's energy and chemical sectors are expected to experience substantial volatility. Future market trends will depend on the duration of the conflict and the pace of restoring strait navigation.

Energy and Chemical Supply Chain Facing Disruption Amid Geopolitical Conflict

Markets view Iran as a major global crude exporter and supplier of energy products like methanol and LPG, while also controlling the strategic Strait of Hormuz—a vital global energy shipping route. Instability in Iran inevitably disrupts supply chains.

As a major global exporter of energy and chemical products, Iran's deteriorating situation will not only affect its own exports but also significantly impact petrochemical exports from other nations. Should the Strait of Hormuz be blocked, Middle Eastern energy and chemical exports are expected to plummet sharply, potentially triggering substantial price surges for these commodities.

Crude oil would bear the brunt of the impact. According to the U.S. Energy Information Administration (EIA), the Strait of Hormuz handles approximately 20 million barrels of oil daily, accounting for roughly one-fifth of global crude production.

The most direct and critical pathway for Iran's situation to affect the chemical industry is through elevated crude oil costs. This cost transmission permeates the entire chemical supply chain, determining the sector's overall trajectory. Analysts note that the Iranian situation impacts markets through four pathways: cost escalation, logistics disruption, supply interruptions, and risk premiums. The navigational status of the Strait of Hormuz serves as a key variable amplifying market volatility. Should passage through the strait be restricted, global crude oil supply would face a physical shortfall of tens of millions of barrels—a tangible disruption beyond mere market sentiment fluctuations.

Out of safety concerns, tankers scheduled to transit the Strait of Hormuz are already on hold. “A one-week delay could trigger a $10/bbl geopolitical risk premium, potentially pushing Brent crude prices toward $80/bbl.”

Within the chemical sector, the impact varies significantly across different products. A research report indicates that methanol and LPG are the two products most significantly affected structurally, followed by benzene, PX, and styrene. Methanol exhibits particularly pronounced elasticity, primarily due to Iran's pivotal role as a major supplier in the global methanol trade system. LPG, highly correlated with crude oil prices, will see its global CP (propane/butane) pricing directly elevated by rising crude oil costs, forming the core driver of LPG price increases.Duration of Conflict and Hormuz Strait Navigation Emerge as Key Variables.

Regarding future market trends, the duration of the conflict and the navigational status of the Strait of Hormuz are seen as critical factors. Market tensions have eased temporarily. Looking ahead, gains in energy and chemical commodities may be relatively limited, with overall market trends likely exhibiting volatility without sustained breaks, characterized by sharp rallies followed by pullbacks.

This round of conflict has not directly impacted oil production facilities. Market expectations have shifted from anticipating prolonged conflict to expecting short-term containment. Combined with ample global commercial inventories and strategic petroleum reserves, these factors are sufficient to address supply disruptions caused by short-term shipping delays, eliminating the need for excessive market panic.

Additionally, OPEC announced on the 1st that eight major oil-producing nations agreed to increase daily production by 206,000 barrels in April. While the market's immediate focus remains on the geopolitical conflict, the OPEC production increase holds limited short-term significance. Nevertheless, it may offer some reassurance, with the critical factor being the development of the situation and whether the conflict can be de-escalated promptly.

The risk lies in the conflict's duration and expectations of supply disruptions to energy products if the Strait of Hormuz is closed. Given that the Strait is the primary export route for Middle Eastern nations, extreme scenarios could see OPEC production increases failing to mitigate export disruption risks. However, if the US and Israel cease attacks and regional tensions ease, the impact on energy products would be limited.

A research report by China International Capital Corporation (CICC) analyzes crude oil price trajectories under different scenarios. It suggests that if the market prices in reduced Iranian supply, oil prices could rise by $10 to $15 per barrel in the short term. Should supply disruptions persist and cause the global oil spot surplus to end prematurely in the second quarter, the floor for Brent crude prices could rise ahead of schedule to above $70 per barrel. Conversely, if Iranian supply losses are limited and the surplus persists, the upper limit for Brent crude prices would be higher.