Asia’s naphtha crunch deepens as Middle East disruptions reshape trade flows

Asia’s petrochemical markets are facing an intensifying naphtha supply crunch as disruptions tied to the crisis in the Middle East, which supplies 60% Asia’s naphtha imports, continue to ripple across global trade flows, forcing buyers to seek alternative sources and curtail production.

While global attention has largely focused on crude oil, market signals increasingly point to a more immediate and severe strain in naphtha availability, particularly across Northeast Asia.

Supply collapse in Middle East flows triggers price surge

The scale of disruption has been severe. Middle East naphtha shipments to Asia fell by as much as 85% in March, dropping to around 550–580,000 tons from typical levels near 4 million tons, according to shipping data.

This sharp contraction has sent prices soaring. Benchmark naphtha values for May cargoes have surged to around $1,300/ton—nearly double pre-war levels—while prompt market backwardation has widened to record highs, reflecting acute near-term scarcity.

Premiums have also spiked, with buyers in Japan reportedly paying more than $100/ton above domestic quotes, a stark reversal from discounts seen earlier in the year.



Asia remains highly dependent on naphtha imports

The Middle East is followed by Russia as a second naphtha supplier but its share is around 14 in overall Asia’s imports. The remaining alternatives are limited and fragmented with scattered and small volumes from the US, India, Europe. On the other hand, particularly Northeast Asian countries’ dependence on naphtha imports remains high.

Korea turns to India, Russia as supply tightens

South Korea has emerged as one of the most exposed markets, given the fact that its 45% of naphtha needs comes from imports. Trade Minister Yeo Han-koo said Seoul has formally requested India to expand naphtha exports, highlighting the urgency of the situation as Middle East-linked disruptions persist.

Around 70% of South Korea’s naphtha imports are sourced from the Middle East, leaving the country highly vulnerable to supply shocks. Imports totaled nearly 27 million tons last year, with key suppliers including the UAE, Qatar, Kuwait and Algeria.

In a notable shift, South Korea has also resumed purchases of Russian naphtha for the first time in four years. LG Chem recently secured a 27,000-ton cargo, enabled by a temporary US waiver, signaling early attempts to diversify supply routes. However, the volume remains marginal compared to the country’s monthly demand of roughly 4 million tons. Besides, LG Chem CEO said it is difficult to secure additional Russian naphtha.

Crackers cut rates as feedstock shortage bites

The supply squeeze is already feeding through to operating rates. Across Japan, South Korea and China, cracker utilization rates have dropped sharply as producers struggle to secure feedstock.

According to market estimates, operating rates in Northeast Asia fell to around 60% in March from approximately 80% in February. Roughly 5% of global ethylene capacity has already been taken offline due to feedstock shortages.

Producers warn that further cuts may be unavoidable. Restarting crackers is both costly and time-consuming, making decisions to reduce or halt operations particularly difficult.

“With less access to captive supply, operators have had little choice but to cut runs,” a market analyst noted, adding that further declines in operating rates are likely if supply conditions fail to improve.

Limited alternatives exacerbate structural tightness

Efforts to replace lost Middle Eastern volumes face significant constraints. Even under optimistic scenarios, alternative suppliers—including the US, Europe and Russia—can cover only around 55–65% of the missing volumes, according to industry estimates.

Russian exports to Asia are also under pressure, with shipments expected to fall sharply amid ongoing disruptions and geopolitical constraints. Meanwhile, logistical and regulatory hurdles limit the speed at which new trade flows can be established.

Crisis spreads beyond petrochemicals

The implications of the naphtha shortage are extending beyond petrochemicals into broader manufacturing and even healthcare sectors. As a key feedstock for ethylene and downstream products such as plastics, packaging, and medical materials, supply instability is beginning to affect a wide range of industries.

Items such as IV bags, medical tubing, automotive components and electronics are increasingly cited as being at risk, highlighting the systemic importance of naphtha within industrial supply chains.

A structurally different crisis from crude oil

Unlike crude oil, where strategic reserves and alternative sourcing have helped stabilize supply in the short term, naphtha markets are proving far more fragile. Limited domestic production and high import dependency make it difficult to offset disruptions quickly.

Industry participants increasingly view the current situation not as a temporary imbalance but as a structural vulnerability. Inventories are being rapidly depleted, and competition for available cargoes is intensifying.

“Ultimately, supply will go to those willing to pay the highest price,” one market source said, underscoring the growing fragmentation in access to feedstock.

Outlook: Tighter markets ahead

Even if geopolitical tensions ease, market participants expect the effects to linger. Analysts estimate it could take several months for supply-demand balances to stabilize, given the time required to restore flows and rebuild inventories.

For now, Asia’s naphtha markets remain under acute pressure, with tightening supply chains, rising costs, and declining operating rates signaling further challenges ahead for the petrochemical sector.