Summary Even if the Strait of Hormuz remains open and hostilities between the United States, Iran and Israel subside, traders estimate it will take three months for shipping traffic to return to normal.

Petrochemical supply flows from the Middle East during the second half of the year depend on shipping bottlenecks, many of which will hinge on developments in the conflict between the United States and Iran. However, according to market participants, trade flows for most chemicals from the Middle East are unlikely to return to pre-war levels quickly, due to changes in global trade economics.

Despite the potential for increased sourcing options with the Strait of Hormuz remaining open, continued uncertainty over delivery for a longer period may make Middle East sourcing options unattractive, according to analysts at S&P Global.

Market participants separately said that if Chinese exports of methanol, polypropylene, and polyethylene, among other materials, filled the gap amid the conflict and remain attractive in terms of prices and delivery schedules during the second half of the year, it will be an important factor to monitor.

China Steps into the Void

China has shifted from its traditional role as a net importer to a volatile regional supplier, particularly for styrene and methanol, and this trend is expected to continue through the second half of 2026, although depletion of coastal inventories may ultimately limit the volume of spot cargoes available for export.

Participants in the Chinese market remain generally unconcerned about imported supplies, according to consumers and traders in China, even as inventories continue to decline well below the normal range of 900,000 to 1.1 million tons.

Domestic production compensates for this shortfall, as local methanol operating rates have risen sharply since the start of the conflict, and methanol buyers and traders noted that regular trade flows from Trinidad and Tobago, Southeast Asia, Chile, Russia, Oman, and Venezuela would maintain a balance in Chinese supply fundamentals in the absence of Iranian methanol, which accounts for about 50% of China's total annual methanol imports.

Taiwan faces the greatest vulnerability among Northeast Asian buyers, as it imports a large proportion of methanol from the region under long-term contracts, causing a structural deficit under current conditions.

Re-exports from China have partially alleviated this shortfall, but have not been sufficient to fully compensate for the loss of unsanctioned supplies from the Middle East.

While the market faces additional upside risks from planned maintenance and unplanned outages across the region, Chinese export shipments are expected to partially curb this rise.

In the polymers sector, China has become a major new exporter of polypropylene due to rapid capacity expansion and slow growth in domestic demand.

Much of this shift is attributed to China's feedstock strategy; with volatile naphtha prices and availability of imported feedstocks, China has expanded coal-to-olefins production rates.

Market participants noted that production rates reached 100% at some producers of this technology, and olefins producers benefited from lower costs compared to crackers and propane dehydrogenation plants.

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However, the competitiveness of Chinese exports is currently being tested, as Vietnam has emerged as one of the most competitive polypropylene suppliers in Asia, with the restoration of feedstock levels in the region.

Weak consumer demand for polypropylene end-products has led to a supply surplus in Southeast Asia, which in turn has lowered export prices in Vietnam.

Overall, China has become a major polypropylene exporter thanks to production disruptions in the Middle East, diversification of feedstock sources, and reopening of shipping routes. However, its export strength will depend on its ability to compete with Vietnam and the Middle East while maintaining cost-effective access to global markets.

Shipping bottlenecks

According to the note, the closure of the Strait of Hormuz prompted producers to move materials to operating ports elsewhere in the region, while land shipping only increased the cost of materials, large quantities of which were contracted and canceled due to long voyage times.

While large quantities of materials accumulated at ports are expected to be sold as distressed cargo, shipping companies are likely to continue imposing war risk surcharges as uncertainty over the ceasefire persists, which could keep prices of chemicals from the Middle East elevated for an extended period during the second half of the year, prompting buyers to seek alternative import sources.

Unsanctioned shipowners refrain from transporting cargoes of Iranian origin due to concerns over sanctions or payment defaults.

For polymer producers, one concern is the clearance of inventories that accumulated at alternative ports in the Middle East during the closure of the Strait of Hormuz.

Producers incurred additional transport costs via land routes to move materials to operating ports during the war, and clearing these materials from those alternative ports, whose sea voyages take longer, is an additional concern.

Market participants said that even if the Strait of Hormuz remains open and hostilities between the United States, Iran, and Israel subside, traders estimate it will take three months for shipping traffic to return to normal, and oil products will be prioritized over chemicals in any resumption of flows.

With the recent escalation of tensions between the United States and Iran, the closure of the Strait of Hormuz has returned to the spotlight, and concerns over shipment delays, prioritization of crude oil and essential commodities for passage through Hormuz, and continued high raw material costs are among the factors market participants will monitor closely during the second half of 2026.