Hormuz Strait Closure Triggers Oil Surge and Global Chemical Supply Shock

On the evening of February 28 local time, Iran's Islamic Revolutionary Guard Corps (IRGC) announced a ban on all vessels passing through the Strait of Hormuz, effectively halting traffic through one of the world's most critical energy and petrochemical transport corridors.

The move immediately triggered a sharp surge in global oil prices and disrupted exports of Iranian-origin chemical products including methanol, polyethylene, polypropylene, urea, sulfur, and liquefied petroleum gas (LPG). Market expectations of tightening global supply have rapidly intensified, while cost pressures across Asian chemical markets have increased significantly.

A Critical Energy Chokepoint

The Strait of Hormuz handles roughly one-fifth of the world's seaborne oil and liquefied natural gas shipments. In 2025, the waterway saw an average daily flow exceeding 20 million barrels of crude oil, condensate, and refined products.

Crude exports from Saudi Arabia, Iraq, United Arab Emirates, and Kuwait — as well as LNG exports from Qatar — rely heavily on this maritime route.

Several international oil companies and commodity traders have already suspended shipments through the strait. War risk insurance premiums for tankers have surged more than tenfold, adding an estimated $0.40–$0.60 per barrel to shipping costs.

During weekend over-the-counter trading, West Texas Intermediate crude oil rose more than 8%, while the probability of Brent crude oil approaching $100 per barrel increased significantly.

Rising Energy Costs Pressure the Petrochemical Value Chain

The closure of the strait is pushing up prices for crude oil, natural gas, and condensate, driving cost increases across the entire petrochemical supply chain.

• Crude Oil

If the blockade lasts several weeks, effective global supply could decline by 8–10 million barrels per day. Asian markets may face growing supply shortages, and oil prices could stabilize above $100 per barrel.

• Natural Gas

Iran holds the world's second-largest natural gas reserves. Production is heavily concentrated in the South Pars Gas Field, which accounts for roughly 80% of the country's output. Disruptions to LNG and condensate exports are expected to raise feedstock gas costs.

• Fuel Oil and LPG

Iran is the Middle East's third-largest exporter of high-sulfur fuel oil, supplying about 20% of China's imports. The country also accounts for around 7% of global LPG trade, reinforcing expectations of tighter supply.

Iranian Chemical Exports Face Major Disruption

Iran is a major exporter of petrochemicals, and logistics disruptions are expected to hit several products particularly hard, including methanol, urea, sulfur, polyethylene (PE), and polypropylene (PP). As one of the largest importers of these materials, China is likely to face immediate supply tightening.

1. Methanol: Global Supply Could Drop 20–30%

Iran is the world's second-largest methanol producer, with annual capacity of approximately 17.16 million tons — nearly 10% of global output. About 90% of production is exported.

China receives more than 75% of Iran's methanol exports, accounting for roughly half of China's total methanol imports. If shipments remain halted, global supply could decline by 20–30%, creating shortages in China's import market and driving strong upward price pressure.

2. Urea Fertilizer: Supply May Shrink 10–15%

Iran has around 13 million tons of annual urea capacity, representing 5.42% of global production. The country exports 9–10 million tons per year, accounting for roughly 10–15% of international trade.

Disruptions to natural gas feedstock and shipping logistics could reduce production by 10–15%, tightening supply for key markets including India, Brazil, and Turkey.

3. Sulfur: World's Largest Exporter Affected

Around 80% of Iran's sulfur is produced as a byproduct of oil and gas processing. The country is the world's largest sulfur exporter, accounting for more than 30% of global exports.

Iran is also China's sixth-largest sulfur supplier. In 2024, exports to China reached 666,000 tons, representing 6.7% of China's imports. Shipping disruptions could quickly tighten global spot supply.

4. Polyolefins (PE/PP): Cost Pressure for Manufacturing

Iran produces roughly 8–10% of global ethylene used to manufacture polyethylene. Iranian PE accounts for about 9% of China's imports. Prices for both high-density and low-density PE may receive strong support, potentially raising packaging industry costs by 15–25%.

Iran's share of global polypropylene supply is estimated at 5–7%. Rising feedstock costs and logistics disruptions could push production costs for textile and automotive materials up by more than 20%.

5. Ethylene Glycol: Limited Impact

Iran's ethylene glycol capacity accounts for about 3.5% of global supply, with over 10% exported to China. Because the market had partially priced in potential disruption, price volatility may remain relatively moderate compared with other chemicals.

Chinese Energy and Chemical Firms Could Benefit

According to market data from commodity analytics platform Shengyi Society Stock Connect, the disruption may benefit China's listed companies in upstream energy extraction, oilfield services, and maritime oil transport.

Among the companies drawing attention:

• Rongsheng Petrochemical operates 1.21 million tons per year of sulfur production capacity, ranking third in China after Sinopec and PetroChina.

• Baofeng Energy is China's leading coal-to-methanol producer with annual capacity of about 7.4 million tons. The company is advancing its 'Liquid Sunshine' technology, enabling production costs 300–500 yuan per ton below industry averages.

Experts: Duration of Disruption Will Determine Impact

Analysts say the event represents a structural shock rather than a systemic crisis for global markets.

According to Tian Lihui, director of the Institute of Financial Development at Nankai University, the crisis affects markets through three main channels: risk premium repricing, energy cost shocks, and constraints on monetary policy. Energy-import-dependent economies in Europe and Asia are likely to face greater pressure.

Experts also note that Iran has historically never imposed a prolonged closure of the Strait of Hormuz. In the short term, the primary impact is expected to be logistical disruption and market sentiment volatility.

However, if the blockade lasts several weeks, global energy and petrochemical trade routes could be significantly reshaped, potentially widening regional price spreads and intensifying supply chain security concerns.

Market Outlook

The International Energy Agency (IEA) previously projected a global crude oil surplus of about 3.73 million barrels per day in 2026, which could partially offset geopolitical disruptions.

However, petrochemical markets remain more vulnerable due to concentrated production capacity and heavy reliance on maritime logistics. Iranian-linked products such as methanol, polyethylene, polypropylene, urea, and sulfur are expected to lead price increases.

In the near term, these commodities may remain firmly supported, with limited downside risk until shipping through the Strait of Hormuz resumes and Iranian petrochemical plants adjust operating rates.