US-Israel attacks on Iran rattle markets: Immediate risks for energy, feedstocks and polymer trade on a global scale

The US-Israel strike on Iran and the subsequent escalation in the region have triggered immediate volatility across energy and feedstock markets. While the full geopolitical trajectory remains uncertain, commodity markets, including petrochemicals, are already pricing in supply risks — particularly across crude oil, natural gas, and Middle Eastern feedstocks that underpin global polymer production.

Risk perceptions intensified further after a drone strike targeted a refinery operated by Saudi Aramco, underscoring the vulnerability of regional energy infrastructure. Although port operations and petrochemical production in the Middle East have not faced direct disruptions so far, the combination of firmer oil prices, mounting risks to LNG flows, and already strained shipping routes is prompting market players to reassess supply security and cost expectations heading into the coming months.

Oil: Brent touches $80 – is there further upside?

Brent crude briefly tested the $80/bbl thresholdfollowing the escalation, reflecting fears of potential supply disruptions across the Middle East.
The key question now is whether this level marks a short-term spike or the beginning of a structurally higher range.

Several risk factors suggest further upside cannot be ruled out given potential disruption to Iranian exports, escalation risks in the Strait of Hormuz, tighter insurance and freight conditions for Gulf-origin cargoes as well as speculative positioning amplifying geopolitical premium.

Iran’s crude exports — much of which flow to China at discounted rates — may face renewed constraints. Any impairment to Gulf shipping lanes would immediately impact global balances, as roughly one-fifth of global oil trade transits through Hormuz.

If supply flows remain intact, prices may stabilize near current levels. However, any physical disruption would likely push Brent toward the mid-to-high $80s range in the short term with some even speculating levels as high as $100/bbl.

Natural gas: LNG flows from the Middle East at risk

The natural gas market is particularly vulnerable. Within hours of the US-Israeli strikes, Iran’s Revolutionary Guards reportedly warned vessels transiting the Strait of Hormuz, raising security concerns along one of the world’s most critical energy corridors. While Tehran has not formally closed the waterway, tanker traffic slowed after a vessel was attacked near Oman. Reuters reported that at least 150 tankers carrying crude, LNG and refined products were anchored outside the strait on Sunday.

The Strait of Hormuz handles roughly 20% of global oil flows and a similar share of seaborne gas trade. Its narrow shipping lanes and lack of viable alternatives make it a strategic chokepoint for Gulf energy exports — and a flashpoint for global energy security.



Reflecting mounting risk premiums, Dutch TTF natural gas futures soared by 25% today from last Friday, while Goldman warned that, in a severe escalation scenario, prices could rise by as much as 130%.

LNG shipments from the Middle East — particularly from Qatar and other Gulf exporters — may face delays or temporary disruption depending on the security environment. Qatar Energy already suspended its LNG production on Monday after being targeted by Iranian drones. Europe, still structurally reliant on LNG following the reduction of Russian pipeline gas, would be directly exposed. Asia would also face tightening spot availability, with China among the largest long-term buyers of Qatari LNG, increasing its sensitivity to Gulf shipping risks.

Freight rates for LNG carriers are likely to spike further if:

• Insurance premiums increase by 25-50%


• Red Sea and Hormuz routes face navigational constraints


• Vessel rerouting becomes necessary

This would create renewed upside risk for TTF benchmarks and Asian LNG spot prices, adding cost pressure across gas-based petrochemical chains.

China: Loss of discounted Iranian feedstocks

China, as the world’s largest energy and petrochemical buyer, stands at the center of the feedstock shock.

For years, China has benefited from discounted Iranian crude. Any effective disruption to Iranian exports would deprive China of these discounted inputs, forcing refiners and chemical producers to source alternative barrels at higher prices. Not only in oil, but also in methanol, Iran has historically been one of the world’s largest exporters and China relies heavily on imported methanol for its MTO units.

This could:

• Raise marginal production costs across China’s refining and petrochemical sectors


• Reduce export competitiveness for downstream polymers


• Narrow China’s arbitrage window in global markets


• Methanol-based olefins (MTO) producers in particular could face margin pressure if methanol flows tighten or prices surge.

Impact on Mid-Eastern feedstock exports: LPG, naphtha trade flows to be hit hard

Beyond crude and LNG, disruption risks extend to Middle Eastern LPG and naphtha exports — both of which serve as critical feedstocks for global petrochemical production.

The Middle East is a dominant supplier of propane and butane to Asia, particularly to China, India, Japan and South Korea. These flows underpin propane dehydrogenation (PDH) units and steam crackers across the region. Any prolonged disruption in Gulf liftings — whether due to shipping constraints, rising war-risk premiums or vessel shortages — would quickly reverberate across propylene and downstream polypropylene chains.

Even without formal export bans, effective supply can tighten through logistics friction. Higher insurance costs, rerouting, and slower vessel turnaround reduce available spot cargoes and widen delivered cost differentials. Asia, which absorbs the vast majority of Gulf LPG exports, would be the first to feel the squeeze. Indeed, propane prices in Asia soared on Monday in response to Aramco’s halt of Juaymah LPG exports following the Iranian strike, which will reflect on propylene and PP prices soon.

Naphtha flows, while smaller in volume compared with LPG, are strategically important for Asia’s cracking system. Saudi Arabia, Qatar and the UAE remain active naphtha exporters, though Saudi exports have trended lower in recent years amid deeper domestic integration into petrochemical complexes.

In a disruption scenario, reduced Gulf availability or higher freight costs could lift CFR Asia naphtha values, directly impacting cracker economics in Northeast Asia and India. Asian spot naphtha prices have already rallied sharply and surpassed the $700/ton mark on the first trading day following the eruption of the war.

Unlike crude oil, where alternative origins can partially offset supply gaps, feedstock substitution is less seamless. Crackers can shift between LPG and naphtha to some extent, but such flexibility often amplifies volatility rather than smoothing it, as buyers compete for whichever feedstock remains more accessible.

The result would be a dual shock: higher upstream feedstock costs and tighter spot availability across Asia’s petrochemical chains.

Impact on Mid-East petchem exports: The possible exposure will span from Asia to Europe and Africa

The implications extend well beyond feedstocks, as the Middle East is a cornerstone exporter of petrochemicals.

PE:

The Middle East exports roughly 11–12 million tons per year of PE, with Saudi Arabia accounting for the lion’s share. These volumes supply structurally import-dependent markets including China, Turkey, Europe, Africa, India and Southeast Asia.

If Gulf logistics become constrained, the immediate effect would not necessarily be plant shutdowns, but reduced effective supply. Delayed cargoes, higher freight costs and insurance premiums would tighten prompt availability and lift delivered prices in deficit regions.

Turkey and parts of Europe, already reliant on imports amid ongoing regional capacity rationalization, could face sharper price volatility. Southeast Asia and India would also need to compete more aggressively for available cargoes. The United States may gain incremental market share, particularly in HDPE and LLDPE, but longer transit times and limited near-term flexibility could cap how quickly US supply fills potential gaps.

In such an environment, PE markets would likely shift from a demand-driven narrative toward supply-security pricing.

PP:

The PP market may prove even more sensitive. Saudi Arabia alone exports approximately 4–5 million tons per year of polypropylene, serving Turkey, Europe, Africa and Asia.

Unlike PE, where the US has significant export capacity, global PP trade is more concentrated and substitution options are narrower. China has expanded PP capacity and exports in recent years, but if feedstock costs rise simultaneously — due to higher LPG prices or reduced availability — Chinese exporters may struggle to maintain aggressive pricing in overseas markets.

Should Middle Eastern PP flows slow materially, Turkey and Africa would likely experience immediate tightness, while Europe could see wider spreads amid already fragile operating rates. In this case, even moderate logistical disruptions could trigger outsized price reactions.

MEG:

Saudi Arabia is also one of the world’s largest MEG exporters, with exports approaching 4 million tons annually, a significant portion of which flows to China.

MEG sits at the heart of the polyester chain, feeding PTA, PET and textile fibers. Disruptions to Gulf shipments would tighten prompt supply in Asia and could push polyester margins under pressure, particularly if combined with firmer crude and naphtha benchmarks.

While Asia holds domestic MEG capacity, import dependence remains meaningful, and a logistics-driven squeeze from the Gulf would add another layer of cost inflation across packaging and textile sectors.

Ammonia, urea and nitrogen fertilizers:

The Middle East is not a secondary player in fertilizers. On the contrary, Saudi Arabia, Qatar and Oman are core exporters of ammonia and urea to India, Africa and other emerging markets.

Nitrogen fertilizer trade is highly seaborne and tender-driven, making it extremely sensitive to shipping disruptions. Even short-term delays can tighten availability and lift global benchmark prices.

In a sustained escalation scenario, fertilizer markets could face renewed volatility reminiscent of previous geopolitical shocks, extending the impact beyond petrochemicals into agricultural input costs and broader food inflation concerns.

From energy shock to trade realignment

Taken together, the evolving situation presents a layered risk profile:

1. Energy benchmarks for crude and natural gas move higher.
2. Feedstock costs rise (LPG, naphtha, methanol).
3. Effective petrochemical export supply from the Gulf tightens.
4. Import-dependent regions compete for alternative origins.
5. Freight and insurance costs embed a structural premium into delivered prices.
6. Even if production facilities remain operational, logistics alone can distort trade flows and alter arbitrage patterns across regions.

Whether this episode remains a temporary geopolitical premium or evolves into a sustained supply disruption will depend on the trajectory of events around the Strait of Hormuz and regional energy infrastructure. For now, markets appear to be pricing in risk — but not yet a full-scale supply shock.