Since the Iran War began in February, Saudi Arabia has shifted shipments of oil and chemicals from the Strait of Hormuz to its west coast ports and down through the Red Sea’s Strait of Bab el Mandeb to the Gulf of Aden. But recent Houthi rebel advances in eastern Yemen and an attack on Saudi Arabia’s East-West pipeline are choking these routes as well, threatening the supply of crucial raw materials to East Asia’s chemical makers.
In Japan and South Korea, the growing crisis is seen as a factor that could accelerate ongoing restructuring efforts. Prices for naphtha, a key petrochemical raw material, have already risen sharply from precrisis levels and may increase more; as producers pass these costs to downstream customers, concerns are emerging that demand may slacken.
“If crude prices rise significantly—driven in part by speculative activity—naphtha prices will inevitably follow,” says Masanori Kawakami, a Japan-based petrochemical consultant.
The Middle East crisis is hitting Japan particularly hard. Japan is advancing a long-term restructuring of its petrochemical sector, with plans to idle 4 of its 12 ethylene crackers. Mitsubishi Chemical Group and Mitsui Chemicals are separating and spinning off their petrochemical businesses to prepare for the next phase of consolidation.
“The Iran crisis carries major implications for Japan’s petrochemical industry. It could accelerate the restructuring efforts underway at each company,” says Yasuo Shimodaira, an executive officer who oversees Mitsubishi Chemical’s Basic Materials division, which includes its petrochemical business. According to the Japan Petrochemical Industry Association, the country’s ethylene plant operating rate has fallen below 70%.
Japan relies on imports for about 60% of its naphtha feedstock, and roughly 70% of those imports come from Persian Gulf countries. The effective closure of the Strait of Hormuz has made naphtha procurement increasingly difficult, prompting Japan to increase purchases from alternative sources such as the US.
Japan has already conducted several releases from its national strategic petroleum reserves, but they contain petroleum products such as gasoline and jet fuel and do not include naphtha. In recognition of the petrochemical sector’s importance, Japan’s government has begun considering designating naphtha as a strategic stockpile item on par with petroleum products.
Petrochemical producers have been raising prices for naphtha-derived products since April. Polyolefin prices have climbed sharply—up to 90% for polyethylene and nearly 80% for polypropylene. Higher prices have also driven a jump in Japanese imports, measured in ethylene equivalent, over the April–June period.
“Ethylene production has fallen by around 10 percentage points. Meanwhile, demand shows uneven but noticeable signs of weakening,” Shimodaira says. Sumitomo Chemical says it is “carefully assessing the degree of impact amid signs of softening demand.”
In South Korea, ethylene profits plunged to historic lows earlier this year. Firms have since increased prices substantially, but profitability remains limited.
“South Korea faces significant structural challenges,” Kawakami says. “Its production capacity far exceeds domestic demand, and exports are heavily concentrated in China, making the sector highly sensitive to China’s capacity expansion.” Ethylene crackers in Yeosu and Daesan, South Korea, are being idled as part of a broader plan to cut capacity.
In addition, South Korea’s heavy reliance on imported naphtha from the Middle East leaves its already fragile industrial structure exposed to the regional conflict. The government has extended emergency supply-adjustment measures for naphtha and petrochemical feedstocks—originally set to expire in August—through January that restrict exports and stockpiling.
China is also feeling the impact of the conflict. In addition to reduced imports of Iranian oil, China faces disruption in shipments of methanol from the country. Iran accounts for 57% of methanol imports into China, which converts the chemical into olefins in what are known as methanol-to-olefin (MTO) units. “China is the only major buyer of Iranian methanol,” Kawakami says. “If supplies drop sharply, MTO production will inevitably be affected.”
