On March 12, the International Energy Agency (IEA) stated in its latest monthly report that the global oil market is facing the most severe supply disruption in history due to the ongoing conflict in the Middle East. With shipping through the Strait of Hormuz nearly disrupted and storage facilities nearing capacity, Gulf states have been forced to cut oil production by at least 10 million barrels per day, and over 3 million barrels per day of refining capacity has been shut down.
Before the conflict, approximately 20 million barrels of crude oil and petroleum products were transported through the Strait of Hormuz; now, this figure has plummeted to negligible levels. The report states that if shipping does not resume soon, the global crude oil supply gap will widen further. The report projects a reduction of 8 million barrels per day in global oil supply in March, with over 4 million barrels per day of refining capacity at risk. The diesel and jet fuel markets are particularly vulnerable due to blocked exports. The report also points out that insufficient available feedstock will restrict production in other regions, potentially leading to supply shortages as late as 2026. In 2025, Gulf producers exported 3.3 million barrels of refined petroleum products and 1.5 million barrels of liquefied petroleum gas (LPG) per day.
The report shows that while increased production in non-OPEC+ countries like Kazakhstan and Russia has eased supply tensions, this improvement is insufficient to fully offset the pressures facing the global market. The International Energy Agency (IEA) projects that global oil supply will increase by 1.1 million barrels per day in 2026. This growth is primarily driven by increased production from non-OPEC+ countries. However, it should be noted that the extent of the reduction in oil supply depends on the duration of the conflict and the degree of disruption to trade flows.
The report predicts that flight cancellations and LPG supply disruptions in the Middle East will reduce oil demand by 1 million barrels per day in March and April compared to previous forecasts. The military conflict in Iran and its surrounding regions has not only shaken the global energy market but has also significantly impacted the international ethylene industry and its entire supply chain. Its negative effects are spreading from upstream oil, along core intermediates such as ethylene and VAM (Vinyl Acetate Monomer), and further downstream to fine chemicals such as VAE emulsions. From Europe to Asia, soaring raw material costs and the risk of supply chain disruptions are causing widespread concern in the industry.
Global Ethylene Supply Chain Crisis
Tensions in Iran are directly impacting the global ethylene supply chain. As the Middle East's second-largest ethylene producer, Iran has a capacity of approximately 7.88 million tons, accounting for 23% of the region's total. Disruptions to this scale of production directly push up the global cost center for chemical products. The Strait of Hormuz, a crucial global energy shipping chokepoint, handles approximately 20% of global crude oil seaborne trade and a significant proportion of chemical shipments. With Iran's announcement of the strait's closure, concerns about logistical disruptions immediately translated into a market risk premium.
Approximately 11% to 15% of global ethylene and polyethylene supply is directly affected by this conflict, and related chemical prices have already begun to rise. In Europe, March ethylene monthly contract negotiations stalled due to soaring oil prices, with the initially expected increase of €35/ton quickly replaced by expectations of €50-60/ton, reflecting widespread market concerns about supply disruptions. Asian markets also reacted sharply, with naphtha prices surging to multi-month highs. Domestic polyolefin (PP/PE) futures prices in China followed suit, with the spot market shifting from routine restocking to defensive stockpiling.
Downstream supply chains are under pressure
This crisis is rapidly spreading along the oil → ethylene → VAM → VAE supply chain. Due to extremely tight ethylene supply, VAM (vinyl acetate monomer) production is directly constrained by raw material shortages, and its market price is facing the risk of soaring. As the core downstream product of VAM, the supply chain stability of VAE (vinyl acetate-ethylene copolymer emulsion) has been severely impacted. The industry generally expects that as VAM costs are passed on, VAE emulsion prices will inevitably rise. However, against the backdrop of widespread industry-wide operating restrictions and a significant reduction in expected VAE output due to insufficient VAM supply, JiangSu ElephChem Holding Limited is able to provide a stable supply of VAM and downstream VAE products.
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