Middle East tensions drive naphtha prices up 18% in one week

Naphtha has become costlier by 18 percent over the past week due to conflict-driven supply disruptions in the Middle East and the closure of the Strait of Hormuz, a key supply route that accounts for around one-fifth of global energy transported by sea. As a consequence, Asian petrochemical producers are facing an acute shortage of naphtha, which may force them to cut downstream production if the intensified conflict involving Iran, Israel, and the United States continues for long.

Data compiled by Polymerupdate Research showed that spot naphtha prices suddenly moved up, registering gains of about 18 percent since Israel and the United States jointly launched missile and drone strikes on Iran last Saturday. Naphtha prices in Europe surged to trade at US$ 695–700 a tonne on March 5, 2026, up from US$ 585–590 a tonne on February 27, the first day of the Israel–US joint military strikes on Iran. Notably, naphtha prices had moved in a narrow range, trading between US$ 540 and US$ 570 a tonne throughout February.

Naphtha CFR East Asia also surged in tandem with the benchmark spot prices, jumping to trade in the US$ 785–787 a tonne range on March 5, significantly higher than the US$ 640–642 a tonne range reported a week earlier. In East Asia as well, naphtha prices had moved in a relatively narrow range of about US$ 40 during February, closing trade between US$ 601 a tonne and US$ 640 a tonne before rising sharply in a knee-jerk reaction to the Middle East conflict.

Following the Asian and European markets, naphtha prices also surged in the United States. The benchmark spot price for naphtha FOB US Gulf jumped to trade at US$ 625.6–625.7 a tonne on March 5, 2026, approximately 20 percent higher than the US$ 523.5–523.6 a tonne reported towards the end of February. Naphtha prices had traded in the US$ 490–515 a tonne range in the North American market throughout February before the recent spike.

Market fundamentals
Naphtha prices have risen sharply over the past week in the Asian market, driven primarily by geopolitical tensions in the Middle East, disruptions in crude oil supply routes, and strengthening refining margins. The escalation of the Iran conflict and the resulting disruptions to shipping through the Strait of Hormuz have significantly tightened the availability of crude and refined petroleum products, including naphtha.

The Strait of Hormuz, through which roughly one-fifth of global oil flows, has become a major bottleneck due to security concerns and tanker attacks. The disruption has pushed up crude oil prices and elevated the cost of petroleum feedstocks, directly lifting naphtha prices in regional markets. The supply squeeze has also pushed Asia’s naphtha refining margin to multi-year highs, reflecting the growing premium buyers are willing to pay for cargoes.

Another factor supporting the rally is the surge in Middle East Gulf naphtha premiums. Spot premiums for cargoes loading from the region recently climbed to around US$ 42.75 a tonne, the highest level in about two years, as traders priced in the risk of supply disruptions from regional refineries and shipping constraints.

Tightening oil market
In addition to supply concerns, the broader oil market has also tightened. Escalating conflict in the Middle East has pushed Asian refining margins to their highest levels in nearly four years, indicating strong profitability for refiners but also signalling tighter supply of petroleum products, including petrochemical feedstocks such as naphtha.

At the same time, uncertainty in feedstock availability has affected petrochemical operations in Asia. Several naphtha-based steam crackers in China and South Korea have reduced operating rates or brought forward maintenance schedules due to high feedstock prices and supply disruptions. These developments have heightened competition for available naphtha cargoes, further supporting prices.
Freight costs and logistics constraints have also contributed to the bullish trend. With shipping routes through the Gulf facing risks and delays, freight rates for alternative supply routes have increased, raising the landed cost of naphtha in key Asian importing countries.

Overall, the combination of rising crude oil prices, tightening feedstock availability, elevated refining margins, and supply chain disruptions has created a strong upward momentum in naphtha markets. Market participants expect prices to remain volatile in the near term as long as geopolitical tensions in the Middle East continue to threaten energy supply routes and refinery operations.

Impact over Asian petrochemical industry
Naphtha prices have climbed steadily over the past week, triggering renewed concern across Asia’s petrochemical industry as higher feedstock costs begin to squeeze margins for steam crackers and downstream polymer producers. The sustained rise in naphtha values, largely driven by escalating geopolitical tensions in the Middle East and disruptions around the Strait of Hormuz, is now reverberating through the entire petrochemical value chain—from olefins such as ethylene and propylene to polymers including polyethylene (PE) and polypropylene (PP). Since naphtha is directly derived from crude refining, the increase in crude prices has quickly translated into higher naphtha costs across Asia.

For petrochemical producers, the rise in naphtha prices is particularly significant because it remains the dominant feedstock for steam crackers in Asia. Countries such as Japan, South Korea, Taiwan, and large parts of Southeast Asia rely heavily on naphtha-based crackers to produce olefins. When naphtha prices increase sharply, the cost of producing ethylene and propylene rises almost immediately, placing pressure on cracker margins.

Ethylene producers are among the first to feel the impact. Ethylene production costs are highly sensitive to feedstock fluctuations, and the recent rally in naphtha has widened the break-even levels for steam crackers. While ethylene prices have shown some upward movement in response, they have not fully kept pace with the rise in feedstock costs, compressing margins for many operators. Some producers have responded by lowering operating rates or advancing maintenance schedules in order to reduce exposure to high feedstock costs.

Propylene markets are also feeling the strain. Although propylene can be produced through multiple routes—including fluid catalytic cracking (FCC), propane dehydrogenation (PDH), and steam cracking—the naphtha-based route remains a key contributor to supply in several Asian markets. Rising naphtha prices therefore push up propylene production costs, which in turn affects downstream derivatives such as polypropylene, acrylonitrile, and propylene oxide.

Polymer producers under pressure
The pressure is even more evident in the polymer sector. Polyethylene and polypropylene producers are facing a dual challenge of rising feedstock costs and relatively weak downstream demand in some regions. While polymer prices have edged higher in response to cost pressures, the increases have been modest compared with the sharp rise in naphtha. As a result, many polymer producers are seeing their margins narrow.

In addition, high feedstock prices are beginning to alter the competitiveness of different production technologies. Producers using alternative feedstocks such as ethane or propane—particularly in the United States and the Middle East—may gain a relative cost advantage over Asian naphtha-based crackers. This widening feedstock differential could reshape trade flows for olefins and polymers if naphtha prices remain elevated for an extended period.

Market participants are also closely watching inventory levels and buying patterns. Some downstream manufacturers are adopting a cautious procurement strategy, delaying large purchases in the hope that feedstock prices will stabilise. This cautious approach could limit the ability of polymer producers to fully pass through higher costs in the near term.

Future outlook
Looking ahead, the direction of naphtha prices—and by extension petrochemical margins—will depend largely on developments in the global oil market and the geopolitical situation in the Middle East. If disruptions to shipping routes and energy infrastructure persist, feedstock costs are likely to remain elevated, prolonging margin pressure across the petrochemical value chain.

For Asia’s petrochemical industry, which remains heavily dependent on naphtha-based production, the current rally underscores the vulnerability of the sector to crude oil volatility and geopolitical shocks. Unless olefin and polymer prices rise sufficiently to offset feedstock increases, producers may continue to adjust operating rates and production strategies in order to protect profitability.

DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com