Hormuz Strait Disruption Threatens Japan and Korea Energy Supply

Strait of Hormuz Closure Disrupts Global Energy Artery

The Strait of Hormuz, widely regarded as the world's most critical energy chokepoint, has become the epicenter of geopolitical tension following Iran's decision to close the passage. As the only maritime corridor linking the Persian Gulf to the Indian Ocean, the strait handles about one-fifth of global crude oil trade. Any disruption to its operation has immediate consequences for global economic stability.

Since the closure, the global crude oil supply gap has widened significantly. Brent crude futures have surged repeatedly, with market institutions warning that prolonged disruption could push prices above $120 per barrel. In the shipping sector, more than 100 vessels remain stranded, while tanker charter rates have reportedly surged nearly tenfold.

Liquefied natural gas (LNG) transport has also been severely affected. Exports from Qatar have stalled, pushing European natural gas futures up by around 50%. Major global shipping companies have suspended passage through the strait, rerouting vessels around the Cape of Good Hope, increasing voyage distances by approximately 40%. Freight costs and war-risk insurance premiums have surged, while port operations across the Middle East are facing significant disruptions.

Chemical Supply Chains Under Severe Pressure

The chemical industry has been hit particularly hard as raw material supply from the Middle East is disrupted. Key chemical exports such as methanol and urea have been constrained, tightening global supply.

China's chemical sector remains exposed, as 30–35% of its methanol imports rely on Middle Eastern suppliers. In addition, over half of China's sulfur imports, a critical feedstock for phosphate fertilizer production, originate from the region. With supply chains disrupted, prices for related products have spiked sharply, placing considerable cost pressure on chemical producers and downstream industries including automotive manufacturing and textiles.

Despite these challenges, China's chemical market has shown relative resilience. The country's self-sufficiency in bulk chemicals has improved significantly in recent years, and emergency response mechanisms are relatively well established. As a result, price volatility in China is currently driven more by global market dynamics than direct supply shortages.

Japan and South Korea Face Greater Exposure

In contrast, the chemical industries of Japan and South Korea are significantly more vulnerable to disruptions in the Strait of Hormuz. Data shows that approximately 80% of oil tankers serving Japan and South Korea pass through the strait.

Japan imports over 95% of its Middle Eastern crude oil through the waterway, while more than 70% of South Korea's imported crude relies on the same route. Strategic reserves provide some short-term relief—Japan maintains roughly 146 days of emergency oil reserves, while South Korea holds about 206 days.

However, analysts warn that a prolonged blockade would create a widening supply gap, potentially delivering a severe blow to both countries' oil refining and petrochemical industries. Tanker rerouting around the Cape of Good Hope could increase freight costs by 50–80%, and if global oil prices surge to $120–130 per barrel, import costs for both nations would rise dramatically, potentially fueling imported inflation.

Petrochemical Sector Losses and Production Cuts

The petrochemical sectors of Japan and South Korea are already facing a chain reaction caused by raw material shortages. Both countries rely heavily on naphtha derived from Middle Eastern crude oil as a key feedstock for petrochemical production.

Supply disruptions are forcing refiners and chemical producers to cut operating rates or suspend operations. Major South Korean companies such as Lotte Chemical and LG Chem have already reported losses.

In Japan, the situation is further complicated by refinery configurations optimized for Middle Eastern crude. Switching feedstock sources in the short term is technically difficult, which further constrains production capacity.

Downstream industries including plastics and synthetic fibers are also experiencing rising costs. Higher raw material prices are feeding into sectors such as automobiles and electronics, reducing export competitiveness and potentially reshaping the regional chemical industry landscape.

Volatile Chemical Prices Across Northeast Asia

Market volatility has intensified across chemical markets in Japan and South Korea. Prices for key industrial materials have surged.

Japanese producers of electronic materials and industrial gases have raised prices significantly. Companies including Resonac and Mitsubishi Gas Chemical have reportedly increased prices for products such as copper-clad laminates (CCL) by more than 30%, while air separation gases have risen by over 10%.

In South Korea, bulk petrochemicals such as ethylene are facing narrowing profit margins due to rising feedstock costs and weak demand. Price spreads have fallen below breakeven levels, deepening industry losses. At the same time, specialty chemicals such as TDI are seeing price increases amid maintenance shutdowns.

Analysts believe that prolonged closure of the Strait of Hormuz could further tighten supplies of feedstocks such as naphtha, forcing refiners to reduce operating rates and accelerating the contraction of traditional commodity chemical production capacity in both countries.

Structural Shifts in Japan and South Korea's Chemical Industries

If the disruption continues, both countries may be forced to restructure their chemical industries.

Japan is expected to strengthen its dominance in high-value segments such as semiconductor materials, while expanding crude imports from alternative suppliers including Australia and Russia to reduce reliance on Middle Eastern oil.

South Korea may be compelled to scale back bulk chemical production and accelerate its transition toward high-performance polymers and battery materials. At the same time, refiners may adapt processing facilities to handle non-Middle Eastern crude, helping mitigate raw material risks.

Implications for China's Chemical Industry

The transformation of Japan and South Korea's chemical sectors could also reshape competition in Asia and create both risks and opportunities for China.

In the short term, rising crude oil prices and chemical feedstock costs are placing pressure on Chinese producers. Around 45% of China's methanol imports rely on Iran, meaning supply disruptions could compress profit margins for domestic refining and petrochemical companies. Downstream sectors such as plastics and synthetic fibers may face rising production costs, with small and medium-sized enterprises under particular strain.

In the long run, however, China's diversified import structure may allow it to fill supply gaps created by shrinking bulk chemical capacity in Japan and South Korea. This could help Chinese producers expand their market share in Asia and ease competitive pressure in traditional chemical products.

At the same time, restrictions on high-end material exports from Japan and South Korea could accelerate China's domestic substitution efforts in advanced materials such as photoresists and high-performance polyimides, pushing the industry toward higher value-added segments.

Nevertheless, analysts caution that China will still need to manage inflationary pressures from rising oil prices and navigate the broader risks of global supply chain instability.