Historic Global Oil Market Supply Disruption: More Than 10 Million Barrels Per Day Cut, Impacting Ethylene Supply Chain

On March 12, the International Energy Agency (IEA) noted in its latest monthly report that the global oil market is facing the most severe supply disruption in history due to the ongoing conflict in the Middle East. With shipping in the Strait of Hormuz nearly halted and oil storage facilities approaching capacity, Gulf countries have had to cut oil production by at least 10 million barrels per day, with over 3 million barrels per day of refining capacity forced to shut down.

The volume of crude oil and petroleum product shipments passing through the Strait of Hormuz was approximately 20 million barrels per day before the conflict, but this figure has now fallen to a negligible level. The report states that if shipping cannot resume soon, the global crude oil supply gap will further widen.

The report estimates that global oil supply will decrease by 8 million barrels per day in March, with over 4 million barrels per day of refining capacity at risk. Due to export disruptions, the diesel and jet fuel markets are particularly vulnerable.

The report indicates that limited availability of raw materials will also restrict production in other regions, which could lead to a supply shortage in 2026. In 2025, producers in the Gulf region exported 3.3 million barrels per day of refined petroleum products, as well as 1.5 million barrels per day of liquefied petroleum gas.

The International Energy Agency stated, "The sharp decline in supplies of liquefied petroleum gas and naphtha has forced petrochemical plants to cut polymer production, further exacerbating the shortage of petrochemical products in the Gulf region."

The report indicates that although output from non-OPEC+ producers Kazakhstan and Russia has increased, easing supply-side tensions, this improvement is insufficient to fully offset the pressures facing the global market.

The International Energy Agency expects global oil supply to increase by 1.1 million barrels per day in 2026. This growth is mainly driven by increased production from non-OPEC+ countries. However, it should be noted that the extent of the decline in oil supply depends on the duration of conflicts and the extent of disruptions to trade flows.

The report forecasts that flight cancellations in the Middle East and disruptions to liquefied petroleum gas (LPG) supply will reduce oil demand in March and April by 1 million barrels per day compared to the original forecast.

The International Energy Agency emphasized that the final impact of the conflict on the oil and gas markets and the overall economy depends not only on the intensity of the military operations and the extent of damage to energy facilities, but more importantly on the duration of shipping disruptions in the Strait of Hormuz.

Military conflicts in Iran and its surrounding regions are not only shaking up the global energy market but also significantly impacting the international ethylene and downstream chemical industry chain. From Europe to Asia, the risks of surging raw material costs and supply chain disruptions are causing widespread concern in the industry.

The tension in the Iran situation directly impacts the global ethylene supply chain.As the second-largest ethylene producer in the Middle East, Iran has an ethylene production capacity of approximately 7.88 million tons, accounting for 23% of the region's total. Supply disruptions of this scale have directly pushed up the global cost base for chemical products.The Strait of Hormuz, as a global energy shipping chokepoint, handles about20% of crude oil maritime trade and a substantial proportion of chemical products transportationAs Iran announced the closure of the Strait, concerns over disrupted logistics immediately translated into a risk premium in the market.

Analysts at KeyBanc Capital Markets, an American investment bank, pointed out that globally, about11% to 15% of the ethylene and polyethylene supply is directly affected by this conflict.Relevant chemical prices have already started to rise.

In Europe, the March ethylene monthly contract negotiations have reached a stalemate due to the surge in oil prices, with the originally expected increase of 35 euros/ton quickly beingreplaced by an expectation of 50-60 euros per ton, raising widespread market concerns over potential supply disruptions. Asian markets reacted sharply as well: naphtha prices surged to multi-month highs, domestic Chinese polyolefin (PP/PE) futures prices jumped significantly, and the spot market followed suit—market sentiment shifted from routine restocking to defensive hoarding.

High-end polymer fieldThe shortage of ethylene will directly restrict the production of POE and push up its market price. In fact, influenced by the expectation of tightened supply of chemical products against the backdrop of geopolitical conflicts, the entire chemical sector has risen strongly, and the stock prices of companies involved in high-end new materials such as POE have already shown some performance.

The surge in ethylene costs will greatly squeeze the profit margins of UHMWPE producers. At the same time, transportation costs are also rising—the cost of shipping containers has increased, with the price for each 40-foot container on some routes rising by $900 to $1400, further intensifying the cost pressure on import companies.