Dow CEO: Iran War-Related Petrochemical Shortage May Drive Inflation Through Year-End

(SeaPRwire) –   The CEO of Dow Chemical has stated that petrochemical price surges and supply shortages stemming from the Iran war are likely to fuel inflation across various sectors, including construction materials, consumer goods, and the automotive and aerospace industries, at least until the end of the year.

Dow Chairman and CEO Jim Fitterling noted that while global attention on supply shocks often focuses on oil, natural gas, fertilizer, and even helium for semiconductors, Iran’s effective closure of the Strait of Hormuz chokepoint has blocked nearly 20% of the world’s petrochemical capacity.

Speaking at the CERAWeek by S&P Global conference in Houston, Fitterling remarked, “The die is being cast for the rest of the year for what’s going to happen in the markets.” He likened the situation to the supply chain disruptions observed during COVID-19.

He further added, “You could be in the 250- to 275-day [range]. This is not going to be an instantaneous rewind.”

Fitterling predicted that this supply shock would not only worsen existing K-shaped economic trends but also create a greater divide between prosperous and struggling regions in the Western and Eastern hemispheres.

Fitterling highlighted that commodity petrochemical plants in the West, particularly in the U.S., primarily use natural gas-derived ethane as their main feedstock, which remains unaffected by the conflict. In contrast, facilities in Asia and much of Europe rely on crude oil-based naphtha, with almost half of Asia’s naphtha supplies typically flowing through the Strait of Hormuz.

Kurt Barrow, S&P Global Energy vice president for oil, fuels, and chemicals research, confirmed that many Asian plants are already declaring force majeure and drastically cutting production due to the lack of naphtha.

Barrow told , “We’re seeing the force majeure of plants in Asia, but we’re not yet seeing the shortages at Home Depot.” He cautioned, however, that “But there is that potential. Chemicals go into everything.”

How the supply chains unfold

Fitterling estimated that when the Strait of Hormuz eventually reopens, only about 15 escorted ships will initially pass through daily, a significant reduction from the typical 150 vessels per day.

The process will prioritize oil and gas, as more than 300 of the approximately 430 stranded vessels are oil tankers, followed by fertilizer for agricultural and food supplies.

“Petrochemicals will be somewhere down the list,” Fitterling stated, noting that these ships take four-week trips to Asia. He emphasized the need to “clear the supply chain out of the Arabian Gulf.”

This situation explains why the pricing difference for base commodity petrochemicals between the U.S. and Asia, typically less than $500 per metric ton, has surged above $1,200, he said. Prices are expected to rise globally.

Fitterling commented, “We have to navigate a two-speed economy; we have to navigate massive geopolitical disruption,” concluding that “The volatility is off the charts right now.”

While this might seem beneficial for U.S. petrochemical producers, given Dow’s recent growth in Texas, Louisiana, and Canada, Dow, like many other major petrochemical companies, is diversified and maintains significant operations in Asia, including large joint ventures in Saudi Arabia.

The petrochemical sector has experienced an industry-wide downturn in recent years. In late January, Dow (ranked No. 103 on the 500) announced a “transform to outperform” plan aiming for $2 billion in savings, which included 4,500 layoffs.

Following a modest industry uptick earlier this year, Dow’s announcement, and now a surge driven by the Iran war, Dow’s stock has risen nearly 70% year to date.

However, Fitterling is not celebrating; instead, he is lamenting the volatility.

For instance, he expressed hope that relatively lower interest rates this year “would stimulate more housing demand,” but warned that the “inflationary impact” of the Iran war could lead to renewed interest rate increases and slower economic growth.

Barrow indicated that U.S. petrochemical plants would operate at full capacity to meet market demand and secure higher profit margins.

“The U.S. is in a really advantageous position,” Barrow said. “Those [ethane] crackers are running as hard as they can to supply the market, but the reality is there’s not enough spare capacity in the world to make up that gap.”

He concluded, “We’re going to have the haves and have nots.”