The Middle East conflict has triggered a global chemicals supply shock, with price increases both faster and larger than during the 2022 energy crisis

Overview

This report focuses on the impact of the Middle East conflict and the closure of the Strait of Hormuz on the global chemicals supply chain. Goldman Sachs believes the current shock is faster, larger, and more global than the 2022 European energy crisis: base chemical prices have recently risen by more than 60%, about 20% of global chemicals supply is already offline, and the impact is spreading from low value-added industries in Asia-Pacific to Europe as well as high value-added sectors such as semiconductors and memory.

Core views

The core view is that, as a foundational input for global manufacturing, disruptions in chemical supply could create broader inflationary and growth pressures. The report argues that the market underestimates three points: first, this round is a step-change shock rather than a gradual evolution like in 2022; second, the shock comes from the global oil, gas, and naphtha system rather than only European natural gas; third, Asia-Pacific’s outsized weight in petrochemical feedstocks, manufacturing, and chemical production significantly broadens the impact. If chemical feedstocks cannot quickly resume flowing, a left-tail scenario of major supply chain disruption and deeper demand destruction could become the base case.

Analysis framework

The report analyzes the issue using frameworks including event-shock comparison, regional feedstock structure, shipping and port friction timing, downstream COGS pass-through, inventory coverage, and consumer price lag effects. Its main benchmark is the 2022 European energy crisis, but the report argues that the 2026 Middle East conflict has brought a chemical shock that is more severe in speed, magnitude, and global reach.

Methodology notes

• Event comparison2022 European energy crisis comparison framework

  Compare the trajectory of base chemical prices after the 2026 Middle East conflict with that during the 2022 energy crisis.

  The report uses indexed contract prices to compare price changes over the weeks following the start of the conflict, concluding that the speed and magnitude of chemical price increases in this episode are about twice those of 2022.

• Supply chain transmissionPetrochemical feedstock structure analysis

  Compare the feedstock structure of steam crackers by region, identifying the shares of oil products, naphtha, ethane, coal-to-olefins, and other feedstocks.

  The report emphasizes that oil products and naphtha are the main feedstocks of the global petrochemical industry, while European natural gas represents only a narrower cost exposure, making this shock more global than in 2022.

• Time lagPhysical supply relief friction framework

  Combine estimates for security clearance, Strait of Hormuz shipping backlog, transportation, port congestion, and cracker restart time.

  The report estimates that these friction factors can add up to about 140 days, implying that even if the waterway reopens, chemical supply in Asia and Europe will be difficult to restore immediately.

• Cost pass-throughPetrochemical-related COGS impact estimation

  Estimate the share of petrochemical-derived inputs in industry cost structures and combine this with petrochemical price increases to calculate the COGS impact.

  The report estimates an average COGS impact of about 11% for European and U.S. companies, with higher impacts in furniture, medical aesthetics, and apparel, while consumer price effects typically lag by 3 to 18 months.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global chemicals industry

  Directly impacted asset

  Strengths

  Chemical demand is embedded in more than 95% of manufactured products, giving the industry systemic importance.

  Weaknesses

  About 20% of supply is offline, feedstocks depend on oil products and naphtha, and supply recovery is constrained by shipping, ports, and plant restarts.

  Comparison

  Compared with the 2022 European energy crisis, this round of price increases is faster, larger, and broader in regional coverage.

  Risks

  Persistent supply gaps, a second round of price increases, demand destruction, and margin compression.

• Asia-Pacific manufacturing

  Highly exposed downstream region

  Strengths

  Asia-Pacific accounts for about 51% of global manufacturing and is the world’s manufacturing center.

  Weaknesses

  Asia-Pacific accounts for about 65% of global chemicals production, and about 70% of its feedstocks come from the Middle East, resulting in a high concentration of supply shock exposure.

  Comparison

  Compared with Europe, Asia-Pacific has greater Middle East exposure in chemical feedstocks, so the shock is more direct.

  Risks

  Supply shortages, factory run-rate cuts, disruption of export chains, and spillover of global manufacturing inflation.

• Semiconductor and memory supply chain

  Risk of shortages of key chemical solvents

  Strengths

  A high value-added industry with products of systemic importance.

  Weaknesses

  Many key solvents are by-products or co-products of base chemical production and are difficult to replace quickly with standalone capacity.

  Comparison

  The report says the impact is spreading from low-value industries to high-value sectors such as South Korean semiconductors and memory.

  Risks

  Solvent shortages leading to constrained production, delivery delays, and supply chain bottlenecks.

• European and U.S. downstream consumer sectors

  Assets under cost pass-through pressure

  Strengths

  Some sectors have annual or cyclical pricing power, while inventories and contract mechanisms can buffer short-term shocks.

  Weaknesses

  The average COGS impact is about 11%, with higher impacts in furniture, medical aesthetics, and apparel.

  Comparison

  Asian supply chains are shorter, while Europe and the U.S. rely on quarterly, semiannual, or annual contract pricing, so peak impacts may be delayed until the third or fourth quarter of 2026.

  Risks

  Gross margin compression, retail price increases, demand destruction, and failure of inventory strategies.

Key data

• Global chemicals market sizeAbout US$5 trillionChemicals are present in more than 95% of manufactured products and form the foundation of the global manufacturing supply chain.
• Current offline supplyAbout 20% of global chemicals supplyThe report says the Middle East conflict has already caused significant disruptions to global chemicals supply.
• Base chemical price increaseMore than 60% recentlyThe report says the price increase is the fastest on record, with both speed and magnitude about twice those of the 2022 energy crisis.
• Asia-Pacific share of global chemicals outputAbout 65%Asia-Pacific also accounts for about 51% of global manufacturing and about 36% of nominal GDP, so the shock has strong spillover effects.
• Timing of supply relief in Europe and AsiaNo earlier than the third quarter of 2026Even if the Strait of Hormuz reopens immediately, transportation, backlog, ports, and plant restarts will still cause delays.
• Supply chain normalization time250-275 daysThe report cites Dow Chemical’s view that the impact on the petrochemical supply chain could far outlast the end of the conflict.
• Average COGS impactAbout 11%This only considers the impact of petrochemical prices and excludes other raw materials, logistics, energy, and other costs.
• Consumer price pass-through lagAbout 3-18 monthsFood and beverages are about 3-9 months, furniture about 6-9 months, and autos and pharmaceuticals can reach 9-18 months or 6-18 months.

Impact & implications

From an investment perspective, the chemicals supply shock could intensify cost pressure across global manufacturing, push up prices for some consumer goods, and compress downstream corporate margins. Asia-Pacific manufacturing, European and U.S. consumer goods companies, and the semiconductor and memory supply chain could all be affected. If feedstock supply cannot recover quickly, prices may see a second round of gains, while production cuts and demand destruction may deepen further.

Risks

• A prolonged closure of the Strait of Hormuz prevents chemical feedstocks from resuming flows in time.
• Security clearance, shipping backlog, port congestion, and cracker restarts significantly delay physical supply relief.
• Base chemical prices experience a second round of increases, further pushing up downstream COGS.
• Production cuts spread from low-value industries to systemically important sectors such as semiconductors, memory, and construction.
• Demand destruction deepens, compressing corporate profit margins.
• Lagged consumer price increases become visible, creating more persistent inflation pressure.

What to watch

• Whether the Strait of Hormuz reopens and the pace of restored navigation afterward.
• The actual number of days for security clearance, shipping backlog, port congestion, and cracker restarts.
• Whether petrochemical plant operating rates in Asia and Europe fall below minimum operating ranges.
• Whether base chemical contract prices continue to rise or enter a second upward leg.
• Updates from major chemical companies such as Dow Chemical on the timeline for supply chain normalization.
• Whether South Korean semiconductor and memory production shows signs of shortages in key chemical solvents.
• Pricing, gross margin, and inventory commentary from European and U.S. consumer goods companies in the third to fourth quarters of 2026.