Hormuz Strait Crisis Sparks Global Chemical Shock China’s Chemical Industry Faces Critical Test

The Hormuz Strait, a critical energy transportation lifeline, has once again become the center of global attention. Amid escalating military strikes by the U.S. and Israel on Iran, tensions in the Persian Gulf continue to worsen. Since early June, several cargo vessels have been forced to change routes or halt their journeys near the Hormuz Strait, causing significant disruption to global shipping.

According to Reuters, vessels such as the "Marie C" and "Ruby" have anchored at Fujairah Port in the UAE, while the "Southern Loyalty" turned back after approaching the strait. Over the course of a week, the number of empty oil tankers entering the Hormuz Strait dropped by 32%, while loaded oil tankers fell by 27%, highlighting the direct impact of the conflict on shipping activities.

Meanwhile, Japanese shipping giants NYK Line and Mitsui O.S.K. Lines confirmed that their vessels will continue to transit the Hormuz Strait but will limit their time in the Persian Gulf. The global energy market has reacted swiftly, with Brent crude oil prices surging 6% after Iran announced the possibility of closing the strait. On June 22, Iran’s parliament approved a proposal to shut the Hormuz Strait, leaving the final decision to the country’s Supreme National Security Council. France’s Les Échos described this move as "Tehran’s ultimate bargaining chip." According to the U.S. Energy Information Administration, approximately 20 million barrels of oil pass through the strait daily, accounting for 20% of global consumption in 2024.

Hormuz Strait’s Key Role in Global Chemical Trade

The Hormuz Strait is not only a vital artery for global energy transportation but also an essential hub for bulk chemical trade. Crude oil and natural gas transported through this strait supply the global chemical industry with critical raw materials such as ethylene, propylene, methanol, and liquefied natural gas (LNG). The Middle East, the world’s largest exporter of methanol and urea, depends on the strait to maintain its supply chain stability. Methanol and urea are essential inputs for downstream industries such as plastics, coatings, and fertilizers.

If the strait is blocked, the supply-demand balance in the global chemical market will be severely disrupted, leading to sharp price fluctuations. Additionally, longer transport times and higher insurance costs will significantly increase overall chemical logistics expenses.

Impact on Chemical Logistics and Production Layouts

Shipping disruptions will force chemical companies to reevaluate global production and logistics strategies. While Saudi Arabia and the UAE have built oil pipelines bypassing the Hormuz Strait, their capacity is insufficient to fully replace the sea route. For countries and companies reliant on Middle Eastern raw materials, rising transportation costs and extended delivery times will squeeze profit margins, particularly for high-cost products like LNG, methanol, and styrene.

In response, global chemical companies may accelerate the shift of production facilities to resource-rich and geopolitically stable regions, such as North America and Southeast Asia, to reduce dependence on the Hormuz Strait.

Multifaceted Impact on China’s Chemical Industry

The Hormuz Strait crisis presents significant challenges to China’s chemical sector, particularly in terms of raw material supply, cost structure, and supply chain security. As the world’s largest methanol importer, with much of its supply originating from the Middle East, China faces the dual pressures of supply shortages and rising prices. Restrictions on importing ethylene and propylene may further destabilize key domestic industries, including plastics, rubber, and textiles.

However, the crisis also provides an opportunity for technological innovation and upgrades in China’s chemical industry. In recent years, China has made progress in coal-to-olefins and coal-to-methanol technologies, leveraging its abundant coal resources to reduce reliance on Middle Eastern oil and gas. Additionally, increased R&D in recycled plastics and biodegradable materials could accelerate the development of a circular economy.

Reshaping Global Competition Amid Market Volatility

The potential crisis in the Hormuz Strait is reshaping the competitive landscape of global chemical markets. Chinese chemical companies need to accelerate their “go global” strategy, establishing production bases in resource-rich emerging markets like Southeast Asia and Africa to mitigate supply chain risks. By collaborating with international chemical giants, China can enhance product value and strengthen its position in high-end markets.

Moreover, Chinese companies must improve their monitoring of global raw material and chemical prices, leveraging tools like futures markets to hedge risks and ensure operational stability amid international market fluctuations.

Energy and Chemical Interdependence

Disruptions in Hormuz Strait shipping will inevitably impact the global energy market, with ripple effects on the chemical industry. IMF Managing Director Kristalina Georgieva has warned that sustained increases in crude oil prices could have profound implications for the global economy. For the chemical industry, rising raw material costs may push up end-product prices, reducing demand and hindering global economic recovery.

Chinese chemical companies must find a balance between rising costs and market demand while expanding domestic market opportunities to reduce reliance on exports.

In conclusion, the Hormuz Strait crisis is not merely an energy and shipping event but a significant challenge and opportunity for the global chemical industry. China’s chemical sector must navigate supply chain pressures through innovation, global expansion, and risk management, ensuring it secures a stronger position in the international market.