Middle East Conflict Risks Escalate Infrastructure Disruptions

Summary

• Geopolitical narrative from the White House and the continued closure of the Strait of Hormuz are primary factors weighing on oil prices, with additional risk from attacks on Middle Eastern production/transport and Houthi attacks in the Red Sea.
• The longer the Strait of Hormuz remains closed, the greater the sustained upward pressure on oil prices and the more difficult a quick price decline becomes.
• Saudi Arabia's East-West pipeline provides a critical partial lifeline, diverting an estimated 4.25 million barrels per day of exports (about 60% of total) from the Persian Gulf to the Red Sea, though these shipments are now at risk from potential Houthi attacks.
• Other regional exporters (UAE, Kuwait, Iraq) have more limited capacity to reroute oil, making the overall supply situation fragile.
• The petrochemical supply chain is facing severe, multi-front disruption: ~12-13% of global polymer exports are cut off, alongside crude oil and key feedstocks like naphtha and liquefied petroleum gas (LPG).
• Analyst Philip Geurts estimates roughly one-third of global ethylene and derivative supplies could be cut off due to the cumulative disruptions, a scale equivalent to Europe's total consumption.
• The physical shortage and price impact are delayed; ships already en route have masked the deficit, with significant market impacts expected to manifest over the coming weeks.
• The primary impact will be regional: Asia faces an immediate "security of supply" concern, especially for essential chemicals used in food packaging, while Europe and the U.S. will face strong inflationary pulls as Asia bids up global prices.
• The inflationary impact on consumer prices for plastics and related goods is expected to be "very strong," ramping up from April onward and worsening through May and June.
• The current crisis is qualitatively different and worse than the Russia-Ukraine war disruption because it represents a direct "slashing" of available global oil volumes, rather than a diversion of flows.