The escalating conflict in the Middle East has already disrupted global markets. Supply of several key commodities has tightened, while the risk of prolonged volatility has surged, BMO Capital Markets warns.
In a recent briefing, analysts pointed to early market response reflecting concentration risk. Commodities with the greatest Middle East exposure (notably oil and fertilizers) have shown almost immediate price reaction. Meanwhile, chemicals and certain metals are beginning to feel supply pressure.
The Biggest Disruption in Decades
BMO oil and gas analyst Randy Ollenberger noted the scale of the disruption, arguing that prices so far haven’t fully reflected the magnitude of the supply risk.
Crude prices briefly surged toward $120 per barrel before retreating to the $90-100 range. To Ollenberger, the market reaction remains relatively muted given the scale. He compared the situation to earlier crises such as the Russian invasion of Ukraine, which drove oil prices higher despite a smaller direct supply impact.
“The reality is that this is the biggest event for the oil market that we’ve had in decades,” Ollenberger said, adding that the market appears to be underestimating the consequences of ongoing disruptions.
Even if hostilities were to end quickly, he said the conflict has already altered oil market fundamentals. Expectations for global oversupply have disappeared as inventories tighten and logistical disruptions spread across the supply chain.
Implications for Agriculture
Fertilizer markets are also under pressure due to the Middle East’s dominant role in global nitrogen exports. BMO analyst Joel Jackson said nitrogen prices have already risen about 30% since the conflict began.
Middle Eastern producers account for roughly half of global urea exports, while Russia and Gulf countries dominate nitrogen supply. At the same time, rising European gas prices have widened the cost advantage for North American fertilizer producers.
Companies such as CF Industries Holdings, Inc. (NYSE:CF) and Nutrien Ltd. (NYSE:NTR) could benefit from the shift, Jackson said, as higher gas costs in Europe and disruptions in Middle Eastern production strengthen North American competitiveness.
While potash markets have remained relatively stable, sulfur shortages — a key input for phosphate fertilizers — could push phosphate prices higher if the conflict drags on.
Chemical Margins Rising
Chemical markets follow the same dynamic. BMO chemicals analyst John McNulty highlighted polyethylene as one of the most exposed products—the Middle East accounts for roughly 15% of global polyethylene production. Thus, any disruption could rapidly tighten the market.
With shipments constrained and Asian producers facing feedstock shortages, industry utilization rates could rise above 90% and potentially approach full capacity, reversing years of oversupply.
That shift is already translating into price hikes in the United States and Europe.
The tighter supply outlook could boost margins for major petrochemical producers such as Dow Inc. (NYSE:DOW), LyondellBasell Industries NV (NYSE:LYB), and Westlake Corporation (NYSE:WLK).
McNulty also pointed to strong pricing momentum in polypropylene, where the Middle East accounts for about 10% of global production.
Battery Production Threatened
Beyond plastics, the conflict is affecting several other chemical markets. Sulfur shortages could support titanium dioxide pricing, benefiting producers such as Tronox Holdings plc (NYSE:TROX) and Chemours Company (NYSE:CC).
However, sulfur markets impact battery production, showing that even without oil, the integration of global supply chains doesn’t leave the electric vehicle sector untouched.
“On average, it takes about one ton of sulfur or around three tons of sulfuric acid to make one ton of lithium carbonate,” noted BMO analyst George Heppel. Despite being priced well above its marginal production costs, prolonged sulfur shortages could disrupt lithium refining in China, the world’s largest lithium refiner.
Nickel may face a greater risk. High-pressure acid-leach operations used to extract nickel rely heavily on sulfuric acid, making them more sensitive to disruptions in sulfur supply.
If shortages persist, Heppel said the resulting cost pressures could lead to production curtailments and tighter supply in the nickel market.
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