More than just fuel
When people talk about the Hormuz crisis, they talk about oil prices and gasoline. That is understandable. A 110 percent increase in crude prices hits everyone at the pump. But the real damage to Asia's economies is happening in places most people never think about: the factories that turn petroleum into plastic pellets, the plants that use natural gas to make fertilizer, and the chemical complexes that produce everything from synthetic fabrics to pharmaceutical ingredients. These industries depend on a steady flow of feedstock from the Gulf, and that flow has slowed to a trickle.
Asia imports approximately 17 million barrels of oil per day through the Strait of Hormuz. That is 84 percent of the region's total crude imports, according to data from the International Energy Agency. China alone takes about 5.8 million barrels per day through the strait. India takes 4.2 million. Japan, South Korea, and Taiwan together take another 3.8 million. Southeast Asian nations take the remaining 3.2 million. These are not abstract numbers. Every one of those barrels is a specific cargo on a specific ship, loaded at a specific terminal, bound for a specific refinery. When the ships stop coming, the refineries stop running. When the refineries stop running, everything downstream stops too.
The plastics problem
Most people do not think of plastic as a petroleum product, but it is. Roughly 8 percent of global oil production goes into making plastics, and the key feedstock is naphtha, a light fraction of crude oil that is produced during the refining process. Asia is the world's largest naphtha importer, and roughly 72 percent of that naphtha comes from Gulf refineries. When the refineries in Saudi Arabia, the UAE, and Qatar cut their runs because they cannot export finished products, the naphtha supply dries up.
It is already drying up. The ICIS naphtha benchmark for Northwest Europe, which tracks the price of the feedstock, has risen 165 percent since the crisis began. In Asia, the Platts naphtha assessment for Japan was $1,012 per metric ton on May 27, up from $385 in mid-March. That is not a price increase. That is a supply collapse being expressed as a number.
I spoke with the operations director of a polyethylene plant in Jamnagar, India, who told me that his facility, which is part of the Reliance Industries complex, the largest refinery in the world by capacity, has cut polyethylene production by 30 percent because naphtha supplies are insufficient. "We can source some naphtha from the spot market, but there is almost nothing available," he said. "The spot market is people selling from inventory. Once that inventory is gone, which will be within two to three weeks, we will have to cut further." Reliance declined to comment officially.
Polyethylene is the most common plastic in the world. It is used in packaging, food containers, water pipes, medical devices, and thousands of other products. A 30 percent cut in Indian polyethylene production means that within six to eight weeks, the packaging industry in India will face shortages. That means food packaging, pharmaceutical packaging, and agricultural film. The cascade effects are enormous and nobody in the mainstream discussion is talking about them.
Fertilizer and food
If the plastics crisis is invisible to most people, the fertilizer crisis will not be. Urea, the most widely used nitrogen fertilizer in Asia, is made from natural gas. Qatar is the world's largest exporter of liquefied natural gas and a major exporter of urea. Qatar's LNG exports have dropped by an estimated 60 percent since the Hormuz crisis began, because LNG carriers cannot transit the strait. Qatar's urea exports have also been disrupted, because the product is shipped through the same channel.
India imports about 8 million metric tons of urea per year, roughly 30 percent of its total consumption. Most of that comes from Qatar, Oman, and Saudi Arabia. In a normal year, India stockpiles urea ahead of the kharif planting season, which begins in June. As of May 27, India's urea buffer stock was 3.2 million metric tons, according to the Department of Fertilizers. That is roughly 40 days of consumption at current rates. If imports do not resume within 40 days, India will face a fertilizer shortage in the middle of its planting season.
A fertilizer shortage does not mean slightly lower crop yields. It means significantly lower crop yields. The International Fertilizer Association estimates that without nitrogen fertilizer, global crop yields would decline by roughly 40 percent. India, which feeds 1.4 billion people on 160 million hectares of arable land, cannot afford a 40 percent yield decline on any portion of its harvest. The government has begun emergency talks with Russia and Morocco about alternative urea supplies, but shipping from those sources takes three to four weeks and the volumes available are a fraction of what the Gulf provides.
Bangladesh is in worse shape. It imports 2.5 million metric tons of urea annually, nearly all of it from the Gulf. Its buffer stock as of late May was 22 days. Vietnam, Indonesia, and the Philippines have similar dependency profiles. A prolonged Hormuz closure could mean fertilizer rationing across South and Southeast Asia by mid-July, right at the peak of the growing season. The food security implications are staggering.
The petrochemical cascade
Beyond plastics and fertilizer, there is the entire petrochemical industry to consider. Ethylene, propylene, butadiene, benzene, toluene, xylene: these are the building blocks of modern manufacturing. They go into car tires, paint, adhesives, synthetic rubber, detergents, insulation, circuit boards, and medical tubing. Asia produces about 55 percent of the world's petrochemicals, and the feedstock for most of that production comes from the Gulf.
South Korea's petrochemical complex in Yeosu, one of the largest in Asia, has cut ethylene production by 40 percent, according to a source at Lotte Chemical who spoke on condition of anonymity. The complex normally processes about 2.8 million metric tons of naphtha per year, almost all of it sourced from Gulf suppliers. Alternative sources, including US shale gas condensate and Russian naphtha, are more expensive and less available. US condensate exports are already committed to existing contracts. Russian naphtha is subject to sanctions and shipping constraints.
The petrochemical cascade works like this. Ethylene shortages mean polyethylene shortages, which mean packaging shortages, which mean food companies cannot package their products, which mean grocery stores cannot stock shelves, which mean consumers cannot buy food in its normal form. This is not theoretical. It is already happening in India, where several small and medium food processors have told trade publications that they cannot source packaging film. Some have switched to paper packaging. Paper is more expensive, less durable, and worse for perishable goods. But it is available.
No quick fix
The reason this crisis is so hard to solve is that the supply chains are not flexible. You cannot redirect a naphtha cargo from Houston to Mumbai the way you can reroute a container ship. Naphtha requires specific storage and handling. The ships that carry it are specialized chemical tankers. The receiving terminals are configured for specific feedstock specifications. Switching suppliers means changing the entire downstream chemistry. Some Indian refineries can process crude from different sources, but the naphtha yield varies depending on the crude blend. A refinery optimized for Arab Light crude will get a different naphtha yield from Nigerian Bonny Light or US WTI. The downstream petrochemical plants are calibrated for the naphtha from the current crude diet. Changing the diet means recalibrating the plants. That takes months and millions of dollars.
I asked a chemical engineer at Indian Oil Corporation whether India could simply source more crude from non-Gulf suppliers. He laughed. "We can buy Russian crude at a discount, and we do. We can buy some from Nigeria and Angola. But the total available from non-Gulf sources is maybe 3 to 4 million barrels per day. Our Gulf imports are 4.2 million. We are short by at least 800,000 barrels per day even if every non-Gulf supplier maxes out. And those suppliers have their own customers. They cannot just redirect their entire output to India overnight."
Asia built its industrial economy on the assumption that Gulf oil would always flow. That assumption lasted for fifty years. It is now being tested in the most brutal way possible, and the cracks are showing up not at the gas station but in the factory, the farm, and the hospital. The oil price gets the headlines. The supply chain breakdown gets the damage.