U.S.–Iran war disrupts naphtha supply, forcing petrochemical plants to declare force majeure, raising costs, cutting margins, and threatening industry restructuring.
The global petrochemical sector is beginning to feel the immediate consequences of the ongoing conflict between the United States and Iran, with supply disruptions emerging as a major concern. Just four days after hostilities began, Yeocheon NCC—the largest ethylene production facility in South Korea—announced a “supply force majeure,” signaling potential contract disruptions due to circumstances beyond its control. This declaration has raised fears that the ripple effects of the conflict could spread quickly throughout the petrochemical industry.
A force majeure declaration allows a company to temporarily suspend contractual obligations when extraordinary events prevent it from fulfilling them. In this case, the disruption stems from difficulties in securing naphtha, the key feedstock used in naphtha cracking centers (NCCs). NCCs are the backbone of the petrochemical value chain, producing essential raw materials such as ethylene and propylene by cracking naphtha at extremely high temperatures and pressures. These base chemicals are then used to manufacture a wide range of plastics, synthetic fibers, and industrial materials.
Yeocheon NCC, located in Yeosu in South Jeolla Province, is a joint venture between Hanwha Solutions and DL Chemical and has an annual ethylene production capacity of 2.28 million tons, making it the largest single ethylene plant in the country. Despite its scale, the company was compelled to issue the force majeure notice due to mounting concerns over raw material supply disruptions triggered by the conflict. The facility had already been facing financial and operational challenges over the past several years because of oversupply in the global petrochemical market, particularly from China. As a result, the company had implemented restructuring measures, including temporarily shutting down its third plant, which has a capacity of 470,000 tons per year.
These restructuring efforts included reducing raw material inventories in order to control costs. However, that strategy left the company with limited reserves when the geopolitical crisis suddenly escalated. According to South Korea’s Ministry of Trade, Industry and Energy, most domestic petrochemical producers currently maintain naphtha stockpiles that would last only about two weeks under normal operating conditions. If the conflict continues beyond this period, industry experts warn that additional companies may be forced to declare supply force majeure as well.
The situation is particularly concerning because approximately one quarter of South Korea’s total naphtha supply has effectively been disrupted. Half of the country’s naphtha demand is met by domestic refiners, while the other half relies on imports. A significant portion of these imports—roughly half—normally passes through the Strait of Hormuz, a critical maritime route that has been severely affected by the ongoing hostilities. If shipments through the strait remain blocked or delayed, petrochemical companies may have no option but to reduce plant operating rates and rely on their remaining inventory. Completely shutting down petrochemical plants is considered a last resort, as restarting them later requires extensive time and high costs.
This challenge is not limited to South Korea. Petrochemical producers in countries such as Indonesia and Singapore are reportedly facing similar difficulties and have already begun issuing their own supply force majeure declarations due to the tightening availability of naphtha.
At the same time, the industry is confronting rising feedstock costs. According to Japan-arrival pricing data, Asian naphtha prices have climbed sharply from around $633 per ton in January to about $776 per ton by early March. Despite these higher raw material costs, petrochemical companies are struggling to pass the increases on to customers. The global market remains saturated with petrochemical products due to excess supply from China, making price increases difficult without risking a drop in demand.
Industry leaders warn that this combination of rising costs and weak pricing power will squeeze profit margins even further. Companies are now exploring alternatives, such as sourcing naphtha from suppliers in the United States or India and requesting domestic refiners to increase production. However, these options are limited because petrochemical producers worldwide are simultaneously searching for alternative supply routes.
The crisis could also affect the broader restructuring of the petrochemical sector. The South Korean government has been encouraging companies to reduce oversupply by scaling back basic petrochemical production while transitioning toward high-value and environmentally friendly products. However, the current supply shock could significantly reduce company earnings, slowing investments in transformation initiatives. On the other hand, some analysts believe prolonged raw material shortages could accelerate consolidation within the industry, particularly among NCC operators, potentially speeding up long-discussed restructuring efforts.
