As the war in Iran progresses, most Americans are asking “How much will I pay at the pump today?” However, companies that are part of the chemical supply chain are asking themselves a different question: “How will I move my goods through the Middle East?”
Whether they’re suppliers looking to import or export chemical products, manufacturers waiting on petrochemical feedstocks, or retailers looking to keep up their inventories and meet consumer demand, companies across all types of industries have had to jump through logistical hoops to maintain business as usual–or just to stay afloat.
While the impact varies by industry and geographic region, these companies are undergoing an important and eye-opening test–they’re learning just how resilient their chemical supply chain strategies are. They’re also seeing just how critical the Middle East is in maintaining the flow of global commerce for chemical-based products, even in countries that feel far removed.
With the recent closure of the Strait of Hormuz in the Persian Gulf region, chemical product shippers, distributors, and buyers have had to:
Learn more about why the conflict in Iran–specifically the closure of the Strait of Hormuz–has been such a major challenge for chemical product suppliers and buyers, how these changes have impacted different global regions, and how companies involved in the chemical supply chain can regain their footing.
Situated at the crossroads of Europe, Asia, and Africa, the Middle East serves as a critical logistics and export hub. Key maritime choke points like the Strait of Hormuz handle a large share of global energy and chemical shipments.
In fact, prior to the partial closure of the Strait of Hormuz during Iran’s conflict with the U.S. and Israel, about 20% of the world’s oil (about 15 million barrels of crude oil per day) passed through the strait, along with natural gas byproducts such as petrochemical feedstock (used for the production of plastic and rubber) and nitrogen fertilizer.
Cargo ships being unable to pass through the Gulf (and air cargo impeded as well) caused major disruptions in the global chemical supply chain due to shortages, delays, or price hikes for:
With these chemical products being essential for various manufacturing processes, the impact has been felt for all types of products, including but not limited to:
Asian countries have been especially hard-hit by the petrochemical shortages caused by the closure of the Strait of Hormuz–especially naphtha, an essential petrochemical feedstock in the manufacturing of semiconductor chips and many other products (plastics, rubbers, synthetic fibers, and more).
For example, South Korea imports about 45% of its naphtha, and roughly 77% of those imports are sourced from the Middle East. The shortage caused by the crisis in the Middle East has forced South Korea to shift to Russia for its naphtha imports.
China, Japan, and other countries in Southeast Asia are also feeling the pinch with naphtha sourcing challenges and price spikes, which are expected to increase operational costs and extend lead times. Many companies in Asia have been forced to reduce their operating rates or completely close facilities as a result of the supply issues.
The impact of the tensions in the Middle East are being felt worldwide, though the area and level of impact varies by geographic region.
Because of its higher dependency on Middle Eastern imports, the Asian market is considered the most vulnerable to the conflict in Iran. The Middle East accounts for 70-80% of the naphtha feedstock used by petrochemical plants in Asia, and the majority of that supply comes through the Strait of Hormuz. Asian countries are also affected by shortages of other essential chemical products, such as methanol and other feedstocks. A trickle-down effect (or a tier-2 supply chain effect) is expected, impacting chemical supply chains in other parts of the world.
In response, various countries in the region have limited exports of fuel and other petroleum-derived products, worked to build up their reserves, and explored new supply options in other regions.
While the European Union and the United States have been less impacted than Asia by the conflict due to at-home reserves and alternate sourcing of oil and petroleum-derivative products, these regions have still been experiencing shortages of chemical inputs, especially those for fertilizers. (About one-third of global seaborne trade in fertilizers passes through the Strait of Hormuz.) Additionally, they have been impacted by global price inflation and increased shipping and logistics costs. In Europe, Italy is especially vulnerable, with fertilizer prices increasing by up to 49% in Italy, compared to 30% globally.
While in the short-term, the disruptions from the war in Iran seem to be turning the global chemical supply chain upside down (causing supply to dwindle and prices to soar), companies and economies worldwide are going through a refining process that could result in more efficient chemical supply chain strategies moving forward.
Companies that want to build a more nimble framework that can better withstand the effects of geopolitical pressures like the war in Iran should take advantage of the following risk mitigation strategies:
For helpful tips concerning the full logistics journey, from sourcing to shipment to warehousing and transport, check out our post on how to strengthen your chemical supply chain strategy.
It’s important to remember that geopolitical events like the conflict in the Middle East have implications that reach far and wide. Even the most insulated economies will experience trickle-down effects that could impact their supply chains, including those for chemical products–so it’s important to be as prepared as possible and adapt your strategies as needed.
Porter Logistics is a third-party logistics company that helps companies create more efficient supply chain workflows. We provide customized solutions to our supplier, manufacturer, and retail clients, helping them navigate even the most complex challenges that arise.Learn more about hazmat and chemical warehousing and explore all that Porter Logistics has to offer
