The conflict in the Middle East is causing commodity prices to soar, driven by disruptions to the supply of raw materials via the Strait of Hormuz.
According to a recent FLASH NEWS report by Coface, the conflict has triggered a “deadlock” scenario that is significantly impacting the oil & gas, fertilizers, petrochemical derivatives and aluminium markets.
“The current escalation in the Middle East is hitting commodity markets hard. Whether the conflict becomes deadlocked will determine the extent of the current shock on the downstream part of the value chain,” Simon Lacoume, sector economist at Coface.
25 days have passed since the launch of the Israeli American offensive against Iran, and the recent attacks on the Ras Laffan gas complex in Qatar have triggered a further rise in the price of energy commodities.
Brent crude reached $119 per barrel last week, marking a 50% increase in just one month.
The impact on oil prices is highly uneven, varying significantly by region and product. For instance, Oman DME crude has soared past $160 per barrel, contrasting sharply with US WTI, which is currently hovering around $100 per barrel.
In the United States, gasoline prices have hit a record high of $3.96 per gallon. In Asia, diesel prices in Singapore have nearly tripled to $256 per barrel since the start of the conflict, whilst global jet fuel prices have doubled, according to the International Air Transport Association (IATA).
The rise is also evident in natural gas, with European gas futures (Dutch TTF) increasing 85% in a month to €55/MWh.
The Asian benchmark (LNG Japan/Korea Marker) has doubled over the same period, reflecting the persistent vulnerability of importing market
By comparison, the US market appears less exposed to supply disruptions. The US Henry Hub is nonetheless under strong upward pressure (+36% month-on-month), a sign that energy tensions have already spread globally, according to Coface.
The Middle East is a critical hub for global food security, accounting for 19% of global nitrogen fertilizer exports and 36$ of urea volume.
Because natural gas accounts for up to 80% of nitrogen fertiliser production costs, the surge in gas prices has pushed granular urea prices up by 37% to $665 per ton.
“For the moment,” analysts state, “only US grain producers appear to be affected, but if the disruptions were to persist, then Brazil, India or even Europe would be more exposed.”
The added: “The negative effects could even extend beyond direct fertilizer flows – to India, Brazil or the United States, for which the Gulf states account for 63%, 24% and 21% of nitrogen fertilizer imports respectively – by affecting third countries such as Morocco, the world’s leading producer of phosphate rock, which is heavily dependent on sulfur exported by the Gulf states.”
Also resulting from this conflict, the prices for many petrochemical compounds are rising exponentially. Prices for polymers have risen due to Strait of Hormuz tensions and low Asian stocks (2-3 weeks), with naphtha in Singapore hitting $1,000, over 60% up since the conflict began, risking broader value chain impact.
The price of sulfur, a key input for copper and nickel ore leaching, has also risen 25% in a month, threatening major producers like Chile, the Democratic Republic of the Congo, and Indonesia.
Aluminium has been identified as the metal most vulnerable to the current blockade. The Gulf states produce 8% of the world’s aluminium, but are currently unable to export finished goods or import the bauxite and alumina required for smelting.
