• Amid the recent sharp escalation in Iran tensions, global ethylene and steam cracking facilities have declared force majeure and implemented substantial production cuts or shutdowns.
• Drastic fluctuations in international crude oil prices, coupled with the looming threat of supply disruptions, have intensified concerns within China’s domestic petrochemical and polyurethane industries.
• How will the conflict impact on China’s petrochemical sector and its downstream polyurethane industry？

Following Iran’s announcement on February 28 to completely close the Strait of Hormuz and its attacks on passing oil tankers, export logistics for crude oil and light hydrocarbons (ethane, LPG) from Persian Gulf nations (Saudi Arabia, UAE, Kuwait, Qatar, etc.) have been severed. Simultaneously, security alert levels in the region have reached their peak, forcing some facilities to shut down due to feedstock shortages or as a preventive safety measure. The affected units are primarily ethane crackers in the Middle East, along with some facilities in Asia (Singapore, South Korea, Japan) that rely on Middle Eastern feedstocks.

Middle East Region

• Qatar: On March 2, QatarEnergy announced a shutdown of its liquefied natural gas (LNG) operations. Subsequently, the suspension expanded to include urea, polymers, methanol, aluminum, and other products.
• Saudi Aramco: On March 2, following a drone attack, Saudi Arabia’s state-owned oil giant, Aramco, preemptively shut down the Ras Tanura refinery.
• Iraq Rumaila Oil Field: On March 3, Iraq’s Ministry of Oil, representing OPEC’s second-largest producer, announced the closure of the country’s largest oil field, Rumaila, and the West Qurna 2 field. On the day of closure, approximately 1.2 million barrels per day (bpd) of capacity were halted. If the Strait of Hormuz remains closed, the scale of shutdowns could expand in the coming days to two-thirds of Iraq’s total crude oil production, amounting to roughly 3 million bpd.
• Preventive Measures: The ongoing US-Iran conflict has also prompted other oil and gas facilities across the Middle East to adopt preventive shutdown measures.

Asia-Pacific Region

Qatar accounts for approximately 20% of global LNG supply, with about 82% of its customers located in Asia. The halt in Qatari LNG production, combined with expectations of naphtha supply disruptions from the Middle East, has led cracking units in Southeast Asia, South Korea, and India to gradually declare force majeure or reduce output.

• Chandra Asri (Southeast Asia - Indonesia) Declares Force Majeure:
  On March 2, Chandra Asri stated in a customer letter that it had declared a force majeure event due to interruptions in the transportation and delivery of feedstock imported from the Middle East caused by the US-Iran conflict. Severe disruptions to maritime transport in and around the Strait of Hormuz have impacted the shipment and delivery of its raw materials. The letter did not specify the duration of the force majeure or explicitly identify which products would be affected. The company operates a 900,000-ton-per-year ethylene unit and a 490,000-ton-per-year propylene steam cracker.

• Aster Chemicals (Southeast Asia - Singapore) Force Majeure Extended:
  Aster Chemicals’ cracker on Pulau Bukom, Singapore, previously declared force majeure in August 2025 due to delayed maintenance. Now, impacted by soaring naphtha and LPG prices and supply instability resulting from the Middle East situation, its restart plan has been postponed again, extending the force majeure status.

• MRPL (India):
  Due to uncertainties regarding gasoline export shipments for March and April stemming from the Middle East conflict, the Indian state-owned refining enterprise Mangalore Refinery and Petrochemicals Ltd (MRPL) recently declared force majeure. In January, MRPL halted imports of Russian crude in compliance with Western sanctions and considered switching to Venezuelan oil. The company’s Karnataka refinery has a processing capacity of 500,000 barrels per day, with 40% of its refined product output destined for export.

• YNCC (South Korea) Declares Force Majeure:
  On March 4, due to disruptions in naphtha feedstock supplies from the Middle East, South Korean petrochemical giant YNCC declared force majeure, stating it would be forced to operate all production facilities at "minimum capacity." YNCC (Yeochun NCC), located in Yeosu, South Jeolla Province, is a major petrochemical enterprise jointly owned (50% each) by Hanwha Solutions and DL Chemical (formerly Daelim Industrial). YNCC operates three naphtha cracking units (steam crackers); Unit 2, with an ethylene capacity of 915,000 tons/year, was operating normally prior to this event. Leveraging feedstocks from these crackers, YNCC also possesses a benzene capacity of 457,000 tons/year, a styrene capacity of approximately 370,000 tons/year, and capacities for propylene and butadiene.

China’s Petrochemical Industry Dependence on Middle Eastern Crude Oil

In 2025, China’s total crude oil imports reached a record high of approximately 578 million tons. Of this, imports from the Middle East totaled about 300 million tons, accounting for roughly 52% of China’s annual crude oil import volume. Although Russia is China’s largest single source of imports, the Middle East as a whole (including Saudi Arabia, Iraq, UAE, Oman, Kuwait, and Iranian crude transshipped via Malaysia, etc.) remains China’s core supply region, contributing over half of its import volume. By country, imports from Saudi Arabia amounted to approximately 80.76 million tons (up 3.5% year-on-year), while imports from Iraq remained stable at about 64.62 million tons. Combined imports from the UAE, Oman, and Kuwait totaled around 91.88 million tons, with imports from the UAE showing significant growth. Additionally, actual imports from Iran, transshipped via locations like Malaysia, remain substantial.

Crude Oil Consumption by Specific Chemical Products

In 2025, China’s petroleum consumption structure showed clear divergence: consumption of transportation fuels (gasoline, diesel) peaked and began to decline, while chemical light oils (chemical feedstocks) continued to grow. Chemical feedstocks now account for 25%-28% of total petroleum consumption, becoming the core engine driving oil demand growth. In 2025, China’s apparent total petroleum consumption was approximately 762 million tons. Of this, crude oil and light hydrocarbons (including naphtha, LPG, ethane, etc.) used for producing chemical products amounted to roughly 190-200 million tons in crude oil equivalent, representing about 26% of domestic petroleum consumption.

Propylene and ethylene are two key upstream raw materials for polyurethanes. Their 2025 production, consumption, and feedstock routes in China are as follows:

Ethylene

Benzene and toluene are upstream raw materials for MDI and TDI, respectively, and both are by-products of naphtha cracking for ethylene production. In 2025, China’s apparent ethylene consumption ranged between 41.5 and 42.0 million tons, a year-on-year increase of approximately 3.5%-4%, driven by downstream demand from packaging and automotive lightweighting. China’s ethylene production in 2025 was about 39 million tons, with improved capacity utilization. The primary domestic ethylene feedstock routes are naphtha cracking and ethane cracking. Comprehensive estimates suggest that approximately 75-80% of ethylene production feedstock relies directly or indirectly on imported petroleum resources.

1. Naphtha Cracking (Main Route, ~65%): Naphtha is primarily derived from the direct refining of imported crude oil or direct imports of naphtha itself (China’s 2025 naphtha imports were about 18 million tons, almost entirely sourced from imported crude resources).
2. Ethane/Propane Cracking (~15-18%): Feedstock mainly relies on imported LPG and ethane (sourced from the Middle East and associated gas in the US; although not liquid crude oil, these fall under broad definitions of imported petroleum resources).
3. Coal/Methanol-to-Olefins (CTO/MTO, ~17%): Feedstock is domestic coal, consuming no imported crude oil.

Benzene

Upstream sources of benzene primarily include petrochemical and coal chemical pathways.

• Petrochemical Pathway: Benzene produced via this route mainly comes from catalytic reformate, by-products of naphtha cracking for ethylene, and toluene disproportionation (TDP). Catalytic reformate is currently the largest source of benzene in China, accounting for about 56% of benzene output (petrochemical pathway). This reformate mainly originates from integrated refining and chemical complexes of enterprises like Hengli, Rongsheng (Zhejiang Petrochemical), and Sinopec. By-products from naphtha cracking contribute about 23% of benzene output (petrochemical pathway), while TDP accounts for approximately 16-20%. Benzene produced via the petrochemical pathway boasts high purity (over 99%) and serves as a key raw material for downstream high-end chemicals such as MDI, styrene, and caprolactam.
• Coal Chemical Pathway: Produced via coal-to-methanol followed by methanol-to-aromatics processes, or through hydrogenation of crude benzene from coking. Hydrogenated benzene/coal chemical benzene accounts for about 17-19%. Sourced from coal via coking crude benzene hydrogenation and refining, this pathway yields benzene with slightly lower purity (96-99%) containing trace impurities. However, due to its price advantage, it is widely used in sectors where extreme purity is not critical.

Conclusion

The Middle East conflict has triggered significant volatility in recent international oil prices. Following the cascading logic of "Crude Oil → Ethylene → Benzene," if the closure of the Strait of Hormuz persists, leading to reduced Middle Eastern crude inputs into China, domestic oil cracking and benzene enterprises will face production cuts. This expectation is the primary factor driving the sharp price increases observed since the beginning of this week for domestic benzene, toluene, and their downstream isocyanate raw materials like MDI and TDI. Beyond the ethylene value chain, market prices for the propylene-propylene oxide-polyether polyol chain are also rising in tandem.