Middle East Chemicals Keep Their Cost Edge Despite Hormuz Crisis

Despite the Iran war and the Hormuz crisis, the Middle East’s low-cost chemicals production is set to retain its long-term advantage over other regions.Near-term shifts in the sourcing of polymers are taking place due to the current constraints in the Persian Gulf’s industrial base, benefiting U.S. chemicals companies.But in the long run, the Middle East is likely to retain its buyers’ base because it still has the two levers to be competitive on the global market—an extensive production base and, most of all, low-cost production with abundant naphtha supply, industry analysts and executives tell Reuters.Many buyers have moved to diversify their polymer supply due to the Middle East crisis and the fewer volumes they have received through the Strait of Hormuz since the Iran war began at the end of February.But many customers see the diversification as protection against the current crisis, not a replacement in the long run, as the low prices of the Middle East’s polymers trump risks to supply for most.Thus, the cost advantage of the Middle East remains a key driver despite the Hormuz crisis. Buyers continue to base their purchasing decisions on price, Morningstar analyst Christian Flemming told Reuters.Even as supply disruptions have prompted diversification, the current bottlenecks in the Middle East are unlikely to reduce the long-term importance and advantage of the Gulf producers in the polymer markets, a spokesperson for chemicals giant BASF told the publication.The Middle East is the world’s biggest exporter of polyethylene, the most used plastic globally.Exports of polyethylene from the Middle East accounted for 43% of all global exports of the polymer last year, data from the International Trader Publications showed earlier this year. The Middle East exported 18.7 million tons out of total global exports of 43.8 million tons in 2025.North America was the second-largest polyethylene exporter last year with 15.6 million tons. Because of secure feedstocks and ample supply, North America is set to fill some of the supply gap amid the Hormuz crisis, according to International Trader Publications.Exports of polymers of propylene (or polypropylene) from the Middle East have been the least affected by the war among 12 key commodities and materials, falling by 24% between April 2025 and April 2026, the UN said in an August analysis.This drop compares with a 54% decline in combined export volumes, a massive 95% slump in LNG exports, an 83% plunge in urea shipments, an 80% slump in methanol, and a 75% crash in ammonia exports from the Middle East. But overall, as a result of the war, the prices of polyethylene and polypropylene, the world’s second-most widely used commodity plastic after polyethylene, have jumped by more than 50% since March.Cheap and abundant feedstock amid soaring plastics prices have made U.S. chemicals producers the immediate winners in the global competition as the Iran war is constraining raw materials and capacity in other regions that depend on Middle Eastern supply.Higher-cost Asian petrochemicals manufacturers early this year announced reductions in capacity runs as their naphtha supply was either too expensive or trapped at the Strait of Hormuz. High energy costs continue to pressure the European chemicals industry, which has been rationalizing and idling capacity since the 2022 energy crisis.U.S. giant Dow, for example, reported net sales in the Packaging & Specialty Plastics segment of $6.4 billion for the second quarter, up by 27% from a year earlier.“This was primarily driven by higher polyethylene pricing, which lifted local price by more than 40%,” Dow’s chief financial officer Jeff Tate said on the Q2 earnings call in July.By Tsvetana Paraskova for Oilprice.comMore Top Reads From Oilprice.comChina’s Sufficient Gas Stocks Could Ease Winter Supply ConcernsData Centers Drive Surge in India’s Renewable Power DemandIran War Set To Push PetroChina’s Trading Profit to Record $3 Billion