Plastic prices have surged to four-year highs after the closure of the Strait of Hormuz knocked out roughly half the world’s polyethylene supply. The consequences will reach far beyond oil markets—into fertilizer bags, paint cans, pharmaceutical packaging, and eventually, grocery store shelves.

When Dow CEO Jim Fitterling addressed investors this month, his assessment was stark: “up to 50% of polyethylene supply either offline, constrained or being impacted” following events in the Middle East. The Strait of Hormuz handles $20 billion to $25 billion worth of petrochemical products annually, according to Rabobank. When Iranian forces effectively closed the shipping lane in early March, they severed the supply chain feeding factories from Seoul to Stuttgart.

The Feedstock Shock

At the heart of the crisis is naphtha, a crude oil derivative that serves as the primary feedstock for petrochemical production outside North America. The Middle East accounts for roughly half of global naphtha exports.

CFR Japan naphtha prices surged from $646 per metric ton to $1,140.50 over three weeks ending March 20—a 76.5% increase, according to OPIS data. Asia’s naphtha refining margin jumped from roughly $108 per ton over Brent crude to above $400.

“Anyone who imports from the Middle East, which is pretty much everyone in the rest of the world to a certain extent, has lost a large supplier and is having to scramble to find replacement resin at extraordinarily higher prices,” said Joel Morales of Chemical Market Analytics by OPIS.

The squeeze has pushed benzene production margins deeply negative. The benzene-to-naphtha spread plunged from $120 per metric ton in late February to negative $88 by March 20—producers are now losing money on every ton.

Force majeure declarations have rippled across the sector. Kuwait Styrene Co., Indonesia’s Chandra Asri, and South Korea’s Yeochun NCC have all invoked contractual clauses limiting supply obligations.

Who Gets Hit Hardest

Japan, South Korea, and India face the worst exposure. Japan sources approximately 42% of its naphtha from the Middle East. South Korean petrochemical producers have cut operating rates by 10 to 20 percentage points, bringing utilization down to 60–70%.

The pain extends beyond plastics. Roughly 30% of globally traded ammonia-based nitrogen fertilizer moves through Hormuz. Urea prices at the New Orleans import hub jumped 32% in a single week, from $516 to $683 per metric ton. The Gulf states account for 36% of global urea volume, according to Coface.

Aluminum faces its own squeeze. Gulf producers represent 8% of global output but cannot export finished product or import raw materials. Aluminum Bahrain suspended 19% of its production in mid-March. Prices have climbed 11.5% month-over-month.

Winners and Losers

North America’s petrochemical industry is relatively insulated. U.S. plastics are largely made from natural gas feedstocks, not naphtha derived from crude oil. LyondellBasell CFO Agustin Izquierdo noted that April order books are the strongest in months despite announced price hikes.

“It’s becoming obvious that North America is an advantaged region in terms of feedstock,” Izquierdo said. U.S. producers are seeing “super-normal” profits as they capture export market share.

China may emerge with even greater advantages. Chinese PVC producers use a coal-based process requiring no imported naphtha. Meanwhile, Beijing can source petrochemical feedstock from Moscow—an option unavailable to U.S. allies in Asia.

The Consumer Foots the Bill

Price increases are already cascading downstream. Germany’s Lanxess has hiked flame retardants by up to 35% and plasticizers by as much as 50%. India’s largest bottled water company, Bisleri, raised prices 11%. Ecolab plans a 10–14% energy surcharge starting in April.

European firms BASF and Wacker Chemie are lifting prices across product lines. Dow and Celanese have announced polyethylene price hikes for March and April.

Governments are scrambling to respond. South Korea has designated naphtha as an “economic security item,” enabling roughly $1 billion in financial assistance to affected companies. The International Energy Agency authorized a coordinated release of strategic petroleum reserves.

The Federal Reserve Bank of Dallas estimates this supply disruption—three to five times larger than the 1973 Arab oil embargo—could reduce global GDP growth by 0.2 to 1.3 percentage points this year, depending on duration.

For consumers, the math is straightforward. The average U.S. resident used 255 kilograms of new plastics in 2019 versus a global average of 60 kilograms. When feedstock costs double, someone pays. That someone is about to see higher prices on everything wrapped, coated, or contained in plastic.

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