Huatai | Middle East Natural Gas Supply Disruption Impacts Chemical Market

(Source: Huatai Ruisi)

Key Points

Since the conflict between the US, Israel, and Iran in late February 2026, key fertilizer and chemical raw material transportation such as urea, LNG, methanol, and sulfur through the Strait of Hormuz has been disrupted due to control issues. Additionally, several natural gas plants in Iran and around the Persian Gulf have reduced or halted production due to the conflict, leading to a rapid increase in global prices for related products since March. The Persian Gulf region, as a major global supplier of urea and LNG, is now facing supply tightness just as the Northern Hemisphere planting season begins. We believe this international urea supply shortage may push up global grain prices in the second half of 2026. China, as a major fertilizer consumer with sufficient domestic urea supply, may see limited impact from overseas price increases. The methanol gap is driving up prices of methanol, acetic acid, and DMF in Asia, and causing bio-diesel prices in Southeast Asia to rise. The sulfur shortage in the medium term is unlikely to be reversed, putting pressure on downstream products like titanium dioxide, lithium iron phosphate, nylon, and phosphate fertilizers. We think Chinese alcoholamine and coal chemical companies with differentiated production paths that consume less sulfur have high strategic value and may benefit. US and Russian chemical companies involved in gas-based processes might also gain.

Disruption of Urea Transport and Natural Gas Production Cuts Will Impact Global Grain Prices in H2 2026

Based on 2025 global urea trade estimates, the US, Israel, and Iran conflict has disrupted about one-third of global urea transportation through the Strait of Hormuz. Natural gas production in the Persian Gulf has decreased, significantly impacting urea production in the Middle East, South Asia, and Southeast Asia. Countries like India, Pakistan, and Thailand, which rely heavily on Middle Eastern natural gas, may see reductions in urea output due to the conflict. According to Bloomberg, Southeast Asia CFR urea prices had already risen 45% by March 18 compared to late February. As the planting season approaches in Europe, America, South Asia, and Southeast Asia (rainy season June-October), rising costs and fertilizer shortages could lead to lower crop yields and higher global grain prices.

China Continues to Secure Urea Supply, Highlighting Fertilizer Strategic Importance

In China, with the continuation of 2025 domestic urea export legal inspections during spring planting, fertilizer supply remains ample. Overseas urea price increases are likely limited. As of March 18, domestic urea prices averaged 1,902 RMB/ton, up 2% from late February. Overall, the increase is modest. China mainly produces urea from coal, with over 80% capacity using coal-based processes, ensuring sufficient capacity without reliance on imports. Under the global supply impact from the US-Israel-Iran conflict, urea and other fertilizers, as essential for food security, have gained strategic importance. After the spring fertilization period, domestic producers may have export opportunities. Currently, the domestic-foreign urea price gap exceeds 2,500 RMB/ton. Leading Chinese urea companies are recommended.

Middle Eastern Methanol Shortage Impacts East Asia, Raising Downstream Prices

According to Kepler, Iran is the world’s second-largest methanol producer and the largest exporter. Due to the conflict, Iran’s methanol output and Strait of Hormuz transit have decreased, potentially causing supply shortages in East Asia. Customs data shows China’s 2025 methanol import dependency at 13%, with about 70% coming from Iran, Saudi Arabia, and other Middle Eastern countries. Reduced imports mainly affect East China’s methanol supply, leading to higher prices for downstream products like acetic acid and DMF. Southeast Asia’s methanol supply tightness is also raising costs for bio-diesel. Despite China’s 82% operating rate in February and ample capacity, the Western coal-based methanol production remains resilient. We recommend coastal Chinese methanol producers.

Decline in Oil and Gas Processing Will Widen Sulfur Supply Gap, Impacting Chemicals and Metals

Approximately 60% of global sulfuric acid is derived from sulfur, 30% from metallurgical by-products, and 10% from sulfur iron ore processing. Crude oil refining and natural gas processing are major sulfur sources. According to Kepler, nearly half of the sulfur exported through the Strait of Hormuz in 2025 was from Iran. Oil supply restrictions and lower North American shale oil and gas sulfur content have contributed to sulfur shortages. S&P Global reports that about 58% of global sulfuric acid is used for phosphate fertilizers, with the rest for metals like nickel, copper, uranium, and for manufacturing titanium dioxide, nylon, dyes, and lithium battery cathodes. With tightening sulfur supply and high prices, chemical projects using differentiated processes—such as phosphogypsum acid production, ferrous sulfate-based phosphate, and chlorination titanium dioxide—are expected to benefit.

Risk Warnings: Supply impact from conflict is uncertain; demand could decline sharply.

Main Text

Potential Global Grain Price Rise Due to Decline in Persian Gulf Gas and Urea Supply

Since late February, the US-Israel-Iran conflict has caused significant tension in global natural gas supplies. According to EI, in 2024, natural gas production in the Persian Gulf accounted for 15% of global output. The conflict could impact about 6,500 billion cubic meters per year of natural gas. In 2024, Middle Eastern LNG exports totaled 1,315 billion cubic meters, with Qatar accounting for 81%. The conflict has led to tight Qatar gas supplies, with international gas prices rising sharply. As of March 13, China’s Zhejiang LNG spot price and the Dutch TTF benchmark were $15.88 and $16.56 per million British thermal units, up 37% and 45% from late February.

South Asia and Southeast Asian countries depend heavily on natural gas for domestic urea production. According to the International Fertilizer Association (IFA), global urea capacity in 2025 was about 240 million tons, with roughly 65% produced via natural gas. China’s capacity is nearly 80 million tons, mostly coal-based (over 80%). South and Southeast Asian countries rely mainly on natural gas, with India’s 2024 natural gas dependency at 49%. Rising gas prices and supply shortages will increase costs for gas-based urea, especially affecting South and Southeast Asia. India’s 2025 urea capacity is about 31 million tons, with less than 5% from coal, and about 80% from gas. Other countries like Pakistan, Indonesia, Malaysia, Vietnam, and Thailand also rely heavily on gas-based urea.

Outside China, East and Southeast Asian countries depend on imports for urea. Kepler estimates that about 16.5 million tons of urea (around 30% of global trade) pass through the Strait of Hormuz annually. India’s 2025/26 imports exceeded 10 million tons, representing a significant portion of its 40 million ton demand. In 2024, urea consumption in East and Southeast Asia was about 13.57 million tons, with 5.42 million tons imported, and high import dependence in Japan, Korea, Thailand, and the Philippines.

Since March, international urea prices have surged, likely pushing up grain prices in H2 2026. According to Longzhong, on March 18, CFR urea prices in the US Gulf and Southeast Asia were $660 and $717.5 per ton, up 35% and 45% from late February. Despite India’s 744,000-ton stockpiles in March—above five-year averages—seasonal demand for fertilizer may lead to higher bidding prices. The timing coincides with planting seasons for corn, spring wheat, soybeans in the Northern Hemisphere, and rice in South Asia. USDA estimates that in 2024, fertilizer costs account for about 35% of US corn and 22% of soybean variable costs. As urea is the main nitrogen fertilizer, rising prices could lead to higher global grain prices in the second half of 2026. If supply tightness persists into Q4 2026 during South America’s planting season, further price increases are possible.

China’s stable urea production from coal keeps domestic prices steady. As of March 18, 2026, domestic urea was priced at 1,902 RMB/ton, well below Southeast Asian CFR prices of around 4,900 RMB/ton. On March 13, China’s urea operating rate was 94.5%, supporting spring planting. We expect China’s urea capacity to grow by 4.19 million tons in 2026, maintaining good supply-demand balance amid rising domestic demand, with some export potential. After the spring fertilization season, quota-holding companies may benefit from export margins. In 2025, China mainly exported urea to Sri Lanka, Vietnam, Mexico, Chile, Ethiopia, and Malaysia. Leading domestic urea companies are recommended.

Middle Eastern Trade Decline May Boost East Asian and Southeast Asian Methanol and Downstream Prices

Iran is the world’s second-largest methanol producer and the largest exporter. Bloomberg and Kepler report Iran’s 2024 methanol capacity at about 17 million tons (5% of global), with annual exports around 4.5 million tons. Kepler estimates that in 2025, about 37% of global methanol trade (roughly 37.5 million tons) passed through the Strait of Hormuz. The conflict has reduced Iran and Persian Gulf methanol output and shipping, creating supply gaps globally, including in China. Customs data shows China’s 2025 methanol imports at about 15 million tons, with 70% from Iran, Saudi Arabia, and other Middle Eastern countries.

For China, reduced imports mainly affect East China’s methanol supply, raising prices for downstream products like acetic acid and DMF. As of March 18, methanol, acetic acid, and DMF prices were 2,460, 3,010, and 5,300 RMB/ton, up 13%, 16%, and 30% from late February. Despite China’s 82% operating rate in February and ample capacity, the Western coal-based methanol process remains resilient. We recommend coastal Chinese methanol producers. For other East and Southeast Asian countries, supply shortages will also increase bio-diesel costs.

Decline in Oil and Gas Processing Will Widen Global Sulfur Supply Gap, Impactting Chemicals and Metals

About 60% of global sulfuric acid is derived from sulfur, 30% from metallurgical by-products, and 10% from sulfur iron ore processing. Crude oil refining and natural gas processing are major sulfur sources. Kepler reports that nearly half of the sulfur exported via the Strait of Hormuz in 2025 came from Iran. Oil supply restrictions and lower sulfur content in North American shale oil and gas have contributed to sulfur shortages. S&P Global states that 58% of global sulfuric acid in 2025 is used for phosphate fertilizers, with the rest for metals like nickel, copper, uranium, and for manufacturing titanium dioxide, nylon, dyes, and lithium battery cathodes. Rising sulfur prices and tight supply will benefit chemical projects using differentiated processes, such as phosphogypsum acid, ferrous sulfate-based phosphate, and chlorination titanium dioxide.

Risk Warnings: Supply impacts from conflict are uncertain; demand could decline sharply.

Main Body

Potential Global Grain Price Rise Due to Decline in Persian Gulf Gas and Urea Supply

Since late February, the US-Israel-Iran conflict has caused global natural gas supply tensions. EI estimates that in 2024, natural gas production in the Persian Gulf accounted for 15% of global output. The conflict could impact about 6,500 billion cubic meters per year of natural gas. In 2024, Middle Eastern LNG exports totaled 1,315 billion cubic meters, with Qatar making up 81%. The conflict has caused Qatar’s gas supplies to tighten, with international gas prices rising sharply. As of March 13, China’s Zhejiang LNG spot price and the Dutch TTF benchmark were $15.88 and $16.56 per million British thermal units, up 37% and 45% from late February.

South Asia and Southeast Asian countries rely heavily on natural gas for domestic urea production. According to IFA, global urea capacity in 2025 was about 240 million tons, with roughly 65% produced via natural gas. China’s capacity is nearly 80 million tons, mostly coal-based (over 80%). South and Southeast Asian countries mainly depend on natural gas, with India’s 2024 natural gas dependency at 49%. Rising gas prices and shortages will increase costs for gas-based urea, especially affecting South and Southeast Asia. India’s 2025 urea capacity is about 31 million tons, with less than 5% from coal and about 80% from gas. Other countries like Pakistan, Indonesia, Malaysia, Vietnam, and Thailand also rely heavily on gas-based urea.

Outside China, East and Southeast Asian countries depend on imports for urea. Kepler estimates that about 16.5 million tons of urea (around 30% of global trade) pass through the Strait of Hormuz annually. India’s 2025/26 imports exceeded 10 million tons, representing a significant share of its 40 million ton demand. In 2024, urea consumption in East and Southeast Asia was about 13.57 million tons, with 5.42 million tons imported, and high import dependence in Japan, Korea, Thailand, and the Philippines.

Since March, international urea prices have surged, likely pushing up grain prices in H2 2026. According to Longzhong, on March 18, CFR urea prices in the US Gulf and Southeast Asia were $660 and $717.5 per ton, up 35% and 45% from late February. Despite India’s 744,000-ton stockpiles in March—above five-year averages—seasonal demand for fertilizer may lead to higher bidding prices. The timing coincides with planting seasons for corn, spring wheat, soybeans in the Northern Hemisphere, and rice in South Asia. USDA estimates that in 2024, fertilizer costs account for about 35% of US corn and 22% of soybean variable costs. As urea is the main nitrogen fertilizer, rising prices could lead to higher global grain prices in the second half of 2026. If supply tightness persists into Q4 2026 during South America’s planting season, further price increases are possible.

China’s stable urea production from coal keeps domestic prices steady. As of March 18, 2026, domestic urea was priced at 1,902 RMB/ton, well below Southeast Asian CFR prices of around 4,900 RMB/ton. On March 13, China’s urea operating rate was 94.5%, supporting spring planting. We expect China’s urea capacity to grow by 4.19 million tons in 2026, maintaining good supply-demand balance amid rising domestic demand, with some export potential. After the spring fertilization season, quota-holding companies may benefit from export margins. In 2025, China mainly exported urea to Sri Lanka, Vietnam, Mexico, Chile, Ethiopia, and Malaysia. Leading domestic urea companies are recommended.

Middle Eastern Trade Decline May Boost East Asian and Southeast Asian Methanol and Downstream Prices

Iran is the world’s second-largest methanol producer and the largest exporter. Bloomberg and Kepler report Iran’s 2024 methanol capacity at about 17 million tons (5% of global), with annual exports around 4.5 million tons. Kepler estimates that in 2025, about 37% of global methanol trade (roughly 37.5 million tons) passed through the Strait of Hormuz. The conflict has reduced Iran and Persian Gulf methanol output and shipping, creating supply gaps globally, including in China. Customs data shows China’s 2025 methanol imports at about 15 million tons, with 70% from Iran, Saudi Arabia, and other Middle Eastern countries.

For China, reduced imports mainly affect East China’s methanol supply, raising prices for downstream products like acetic acid and DMF. As of March 18, methanol, acetic acid, and DMF prices were 2,460, 3,010, and 5,300 RMB/ton, up 13%, 16%, and 30% from late February. Despite China’s 82% operating rate in February and ample capacity, the Western coal-based methanol process remains resilient. We recommend coastal Chinese methanol producers. For other East and Southeast Asian countries, supply shortages will also increase bio-diesel costs.

Decline in Oil and Gas Processing Will Widen Global Sulfur Supply Gap, Impacting Chemicals and Metals

About 60% of global sulfuric acid is derived from sulfur, 30% from metallurgical by-products, and 10% from sulfur iron ore processing. Crude oil refining and natural gas processing are major sulfur sources. Kepler reports that nearly half of the sulfur exported via the Strait of Hormuz in 2025 came from Iran. Oil supply restrictions and lower sulfur content in North American shale oil and gas have contributed to sulfur shortages. S&P Global states that 58% of global sulfuric acid in 2025 is used for phosphate fertilizers, with the rest for metals like nickel, copper, uranium, and for manufacturing titanium dioxide, nylon, dyes, and lithium battery cathodes. Rising sulfur prices and tight supply will benefit chemical projects using differentiated processes, such as phosphogypsum acid, ferrous sulfate-based phosphate, and chlorination titanium dioxide.

Risk Warnings: Supply impacts from conflict are uncertain; demand could decline sharply.