Conflict in the Middle East has disrupted supplies of raw materials in the Strait of Hormuz, sending commodity prices soaring.
According to a recent Coface dispatch, the conflict triggered a “stalemate” that has had a significant impact on the oil and gas, fertilizers, petrochemical derivatives and aluminum markets.
“The current escalation in the Middle East is hitting commodity markets hard. Whether the conflict reaches a stalemate will determine how badly the downstream parts of the value chain are hit,” said Simon Lacoume, industry economist at Coface.
It has been 25 days since Israel and the United States launched an offensive against Iran. The recent attack on the Ras Laffan natural gas plant in Qatar triggered further increases in energy commodity prices.
Brent crude oil reached $119 a barrel last week, a rise of 50% in just one month.
The impact on oil prices is highly uneven, varying by region and product. For example, Oman DME crude oil has surged to over $160 per barrel, in stark contrast to U.S. WTI, which currently hovers around $100 per barrel.
In the United States, gasoline prices have hit a record high of $3.96 per gallon. In Asia, Singaporean diesel prices have nearly tripled to $256 a barrel since the conflict began, while global jet fuel prices have also doubled, according to the International Air Transport Association (IATA).
The rise in natural gas is also evident, with European Natural Gas Futures (Dutch TTF) rising 85% in one month to reach €55/MWh.
The Asian benchmark (LNG Japan/Korea benchmark) doubled over the same period, reflecting continued vulnerability in import markets
In contrast, the U.S. market appears less vulnerable to supply disruptions. Coface said that despite this, the US Henry Hub is still facing strong upward pressure (up 36% month-on-month), which shows that energy tensions have spread around the world.
The Middle East is an important hub for global food security, accounting for 19% of global nitrogen fertilizer exports and 36% of urea exports.
Since natural gas accounts for up to 80% of the cost of nitrogen fertilizer production, the surge in natural gas prices has caused the price of large granular urea to increase by 37% to US$665 per ton.
Analysts said, “At present, it appears that only U.S. grain producers are affected, but if supply disruptions continue, Brazil, India and even Europe will face greater risks.”
It added: “The negative impact may even go beyond direct fertilizer inflows – to India, Brazil or the United States (Gulf countries account for 63%, 24% and 21% of nitrogen fertilizer imports respectively) – and also affect third countries such as Morocco. Morocco is the world’s leading producer of phosphate rock and relies heavily on sulfur exports from Gulf countries.”
Also as a result of this conflict, the prices of many petrochemical compounds have increased exponentially. Rising polymer prices, with Singapore naphtha hitting $1,000, up more than 60% since the conflict began, could impact the wider value chain as polymer prices rise due to tensions in the Strait of Hormuz and low stocks in Asia (2-3 weeks).
Prices for sulfur, a key raw material for leaching copper and nickel ores, have also jumped 25% in a month, threatening major producers such as Chile, the Democratic Republic of Congo and Indonesia.
Aluminum is considered the metal most vulnerable to the current lockdown. The Gulf states produce 8% of the world’s aluminum but are currently unable to export the finished product or import the bauxite and alumina needed for smelting.
