Taipei, Taiwan — One month into the escalating conflict in Iran, the world is beginning to feel the ripple effects of a shrinking oil supply—and it is threatening more than just energy markets. What began as a crude oil and natural gas disruption through the Strait of Hormuz is now spilling over into almost every corner of the global consumer economy.
The war in the Middle East has cut global oil and gas flows by roughly one-fifth. The immediate result has been soaring fuel prices, but the effects are rapidly extending to petrochemicals used to produce everyday items—from shoes and clothing to plastic packaging and disposable goods.
The strain is most visible in Asia, which produces more than half of the world’s manufactured goods and depends heavily on imported oil and petrochemical feedstocks.
In South Korea, for example, panic buying of trash bags has prompted authorities to advise event organizers to reduce disposable items. Taiwan has set up a hotline for manufacturers struggling to source plastic, while rice farmers warn that vacuum-sealed packaging shortages may force price increases.
Japan is facing potential disruptions in medical treatments due to a shortage of plastic tubing used in hemodialysis, and Malaysia’s glove industry is concerned that a lack of a petroleum byproduct for rubber latex could threaten global supplies of medical gloves.
“This spreads into everything very quickly—beer, noodles, chips, toys, cosmetics,” said Dan Martin, co-head of business intelligence at Dezan Shira & Associates, a consultancy for companies operating in Asia. Plastic caps, containers, snack bags, and packaging are increasingly difficult to procure, while petroleum derivatives are also critical for adhesives, industrial lubricants, and solvents for paints and cleaning processes.
The crisis is exerting upward pressure on global inflation, squeezing profit margins for manufacturers and raising costs for consumers. Rising energy prices are disrupting logistics and travel, while shortages of fertilizer and helium from the Middle East could push up the cost of food and electronics.
The International Monetary Fund warned that these “complex spillovers” come at a time when many economies have limited capacity to absorb shocks. “Although the war could shape the global economy in different ways, all roads lead to higher prices and slower growth,” the IMF wrote in a recent blog post.
Limited Options
Countries have released oil from emergency reserves to mitigate the crisis. However, the core of the problem lies in naphtha, a petroleum byproduct essential for making synthetic materials. Unlike crude oil, reserves of naphtha are smaller and alternatives scarce. Several petrochemical companies in Asia, which sources more than half of its naphtha from the Middle East, have reduced output or declared force majeure, a legal term for unforeseen events preventing contractual obligations.
South Korea, taking advantage of a temporary suspension of U.S. sanctions on Russian petroleum products, recently imported naphtha from Moscow and imposed an export ban to safeguard domestic supply. The shortage has already pushed input costs higher for manufacturers producing semiconductors, medical-grade packaging, automotive components, and food-grade materials.
“There isn’t much recourse except to cut production and conserve energy,” Martin said. “Everyone is competing for the same resources.”
Prices of plastic resins in Asia have surged by as much as 59% since late February, according to ICIS, a commodities intelligence platform. Thailand’s major plastic packaging supplier has raised prices by 10% for food and take-out packaging, while India reports that plastic bottle caps have quadrupled in price. South Korea’s largest instant noodle producer has only about a month’s supply of plastic packaging remaining.
The Crisis Spreads West
Asia may be the first region to feel these disruptions, but the consequences are likely global. The Middle East produces 17% of the world’s naphtha, 30% of plastic resin, 45% of sulfur (used in fertilizer), 33% of helium (critical for semiconductors and healthcare), and 22% of urea and ammonia (used in agriculture).
In the U.S., farmers are already paying one-third more for imported urea. In India, manufacturers report shortages not only of packaging and silicon oil, which depends on petrochemical feedstocks, but also ammonia.
“Similar to the COVID-19 pandemic, the shock is unfolding sequentially rather than all at once—a rolling disruption moving westward,” J.P. Morgan analysts noted.
For now, Asian countries are managing the immediate crisis by releasing stockpiles, capping fuel prices, and reducing industrial energy use. But analysts warn that supply constraints are expected to worsen in April, when the last pre-war shipments of crude oil are scheduled to arrive.
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