The Iran war has already set the stage for elevated petrochemical prices through year-end, and the supply chain damage could take the better part of a year to unwind, Dow chairman and CEO Jim Fitterling said.
Speaking at the CERAWeek by S&P Global conference in Houston on Thursday, Fitterling warned that nearly 20% of global petrochemical capacity is now effectively blocked by the closure of the Strait of Hormuz, with ripple effects expected across construction materials, consumer goods, and the automotive and aerospace industries.
“The die is being cast for the rest of the year,” Fitterling said, comparing the disruption to the COVID-era supply chain snags. He estimated a 250- to 275-day recovery window once the strait reopens, cautioning it would not be an immediate rebound.
While roughly 150 vessels typically flow through the Strait of Hormuz each day, Fitterling estimates only about 15 escorted ships will initially proceed daily when the strait eventually reopens — with oil and gas tankers prioritized first, then fertilizer, with petrochemicals likely further down the queue.
East Vs West
Fitterling noted that U.S. petrochemical plants run largely on ethane — a natural gas derivative unaffected by the war — while Asian and European plants depend on naphtha, nearly half of Asia’s supply of which flows through the strait. That pricing gap between the U.S. and Asia, typically under $500 per metric ton, has already surged above $1,200.
The supply shock will exacerbate the so-called K-shaped economic trends, he said, and create greater haves and have-nots between the Western and Eastern hemispheres.
Meanwhile, despite Dow’s stock climbing nearly 70% year to date, Fitterling said he is not celebrating. He warned that the war’s inflationary impact could push interest rates higher, dampening housing demand and broader economic growth.
“The volatility is off the charts right now,” he said.
Four weeks into the U.S.-Israel-Iran war, thousands of people have been killed as tensions continue to escalate, and soaring energy prices fuel inflation fears.
Image via Shutterstock
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