The Middle East is triggering a "wide-scale force majeure" in the global chemical industry

The escalating conflict in the Middle East and the obstruction of the Strait of Hormuz are turning a geopolitical crisis into a systemic supply shock for the global chemical industry.

According to Wind Trading Desk, citing Morgan Stanley’s latest Force Majeure Tracker released on March 13, since the outbreak of the Iran conflict, force majeure declarations for major global chemical products have shown a domino effect across regions and categories. This includes key categories such as ethylene, propylene, polyethylene, polypropylene, PVC, and liquefied natural gas, impacting companies across China, Japan, South Korea, Singapore, Indonesia, Poland, Germany, Kuwait, Saudi Arabia, Qatar, and other countries and regions.

The spot market has responded first—North America ethylene spot prices surged 24.0% compared to the last week of February, North American propylene rose 12.8%, and North American polypropylene spot prices soared 25.0%.

Morgan Stanley pointed out that feedstock availability is currently the most critical bottleneck. If the conflict continues and the Strait of Hormuz remains blocked for an extended period, operating rates in the Middle East and Asia could decline further. Even if some companies have not officially declared force majeure, actual capacity losses will continue to expand.

Olefins and Feedstocks: The First Wave of Force Majeure Impacts

The olefins sector is the hardest hit in this wave of force majeure declarations. According to Morgan Stanley’s report, as of March 12, 3.9% of global ethylene capacity is under force majeure, and propylene is at 3.2%. Both figures represent increases of about 1.7 percentage points from the March 6 data.

Regionally, the most concentrated impacts are in Southeast Asia and Central Europe. In Southeast Asia, 20.4% of ethylene capacity is affected, while in Central Europe the number is 60.2%.

Regarding specific declarations, Formosa Petrochemical announced on March 9 that its Mailiao olefins division entered force majeure due to the escalation of the Middle East conflict leading to naphtha supply disruption, affecting about 2.93 million tons/year of ethylene capacity and 2.43 million tons/year of propylene capacity, with all facilities now operating at minimum capacity. Singapore’s Aster Chemicals and Energy announced force majeure on March 6 for 1.15 million tons/year of ethylene, 500,000 tons/year of propylene, and 290,000 tons/year of benzene, citing severe shipping blockades in the Strait of Hormuz disrupting feedstock supply, with cracker utilization dropping to about 50%. Thailand’s Rayong Olefins, Singapore’s PCS, and South Korea’s Yeochun NCC (YNCC) also separately declared force majeure, all pointing to disruptions in naphtha or propane procurement.

Germany’s OMV declared force majeure at its Burghausen plant due to technical issues with its crude distillation unit, affecting 485,000 tons/year of ethylene, 225,000 tons/year of propylene, and 70,000 tons/year of butadiene. Poland’s Orlen declared force majeure for 700,000 tons/year of ethylene, 385,000 tons/year of propylene, and 70,000 tons/year of butadiene at its Plock facility, though the reasons and operating rates remain unclear.

Polyolefins and Downstream Polymers: Supply Chain Disruption Spreads Downstream

Force majeure declarations are rapidly spreading down the industrial chain. According to Morgan Stanley, 1.4% of global polyethylene (PE) capacity is now under force majeure, with polypropylene (PP) at 1.0%, up 0.8 and 1.0 percentage points, respectively, from the previous tracking period.

Formosa Plastics Taiwan announced force majeure for petrochemical products on March 12, citing shortages of key feedstocks such as ethylene and propylene, further compounded by shipping delays due to the Strait of Hormuz blockade. Morgan Stanley estimates about 970,000 tons/year of Northeast Asia PE capacity is affected. LyondellBasell announced force majeure on polyolefins sales for its European subsidiaries Basell Sales & Marketing Company and Rotterdam Olefins & Polyolefins, citing market uncertainties and feedstock procurement difficulties arising from the Middle East conflict. However, Morgan Stanley believes the impact on actual production is relatively limited due to the company’s contract terms and Dutch Civil Code protections. The Polyolefins Company (TPC) of Singapore also declared force majeure, with its upstream supplier PCS affected by the Hormuz Strait situation, forcing several production lines to shut down, impacting about 270,000 tons/year of PE and 625,000 tons/year of PP.

Indonesia’s PT Chandra Asri Pacific Tbk declared force majeure on March 2 for 755,000 tons/year of PE and 590,000 tons/year of PP, again citing ocean shipping and raw material supply interruptions caused by the security situation in the Strait of Hormuz.

In the spot market, North American PE spot prices rose 15.1% on average versus the last week of February, while North American PP increased 25.0%. Western European PE increased 8.6%, and Western European PP rose 7.1%.

Chlor-Alkali and Vinyl Products: Chinese Companies Concentrate Announcements

The chlor-alkali and vinyl products chain is the segment where Chinese companies are most concentrated in this round of force majeure declarations. According to Morgan Stanley, 5.2% of global PVC capacity is now under force majeure, along with 5.4% of VCM, 6.4% of EDC, and 1.4% of caustic soda—these are all new additions during this tracking period.

Tianjin Bohua Chemical Development declared force majeure on March 11, affecting 905,000 tons/year caustic soda, 1.5 million tons/year EDC, 1.29 million tons/year VCM, and 1.37 million tons/year PVC. The company stated that the escalation of the Middle East conflict led upstream raw material suppliers to officially declare force majeure, causing severe and sudden interruptions to its production and operations. Tianjin LG Bohai declared force majeure on March 10, involving 280,000 tons/year caustic soda, 640,000 tons/year EDC, 350,000 tons/year VCM, and 400,000 tons/year PVC, citing supply disruption due to the blockade of the Strait of Hormuz, with plans to gradually reduce production.

Formosa Plastics also announced force majeure in the chlor-alkali chain, with Morgan Stanley estimating impacts on about 1.792 million tons/year of EDC, 1.64 million tons/year of VCM, and 1.19 million tons/year of PVC. Indonesia’s Sulfindo Adiusaha announced force majeure on March 9 involving 336,000 tons/year of caustic soda, 370,000 tons/year of EDC, 130,000 tons/year of VCM, and 110,000 tons/year of PVC. Europe’s INEOS Inovyn has also declared force majeure for PVC exports to customers.

LNG and Other Products: Middle East Local Production Directly Hit

Local production facilities in the Middle East are directly impacted, with LNG supply chains particularly hard hit. QatarEnergy announced on March 2 that all of its 77.4 million tons/year LNG business at Ras Laffan Industrial City entered force majeure due to production stoppage after the industrial city was attacked. India’s Petronet LNG then declared force majeure for LNG receiving on March 5, in line with its supplier QatarEnergy’s announcement.

Kuwait’s EQUATE declared force majeure on 1.15 million tons/year of ethylene glycol (EG) due to cargo disruptions caused by the closure of the Strait of Hormuz, with its EG-2 plant previously suspended. Saudi’s Sadara Chemical Company declared force majeure on 180,000 tons/year of ethanolamines and 200,000 tons/year of glycol ethers, with the end date depending on the lifting of shipping restrictions in the Strait of Hormuz. Bahrain Petroleum Company (BAPCO) declared force majeure on about 379,800 tons of three categories of base oils after its refining complex was attacked. Kuwait Styrene Company (TKSC) declared force majeure on about 525,000 tons/year of styrene monomer.

Morgan Stanley noted that given the highly fluid nature of the conflict, the tracker may not cover all ongoing shutdowns, and investors should continue monitoring the evolving situation for further impacts on the global chemical supply chain.