Energy crisis spreads from oil to consumer goods

More than a month after the conflict in Iran erupted, disruptions to crude oil supply have become more visible and are at risk of widening into a broader crisis, affecting not only energy but also many everyday goods.

The conflict has disrupted the flow of crude oil and natural gas through the Strait of Hormuz, affecting about one-fifth of global supply.

From energy to petrochemicals and consumer goods

The impact is extending beyond higher fuel prices to tighter supply of petrochemical feedstocks, which are essential inputs used to manufacture a range of common consumer products, including footwear, clothing, and plastic bags.

Rising energy costs have already spilled into consumer markets, lifting prices of inputs such as plastics, rubber, and polyester. Asia is the most affected region: it accounts for more than half of global manufacturing capacity but relies heavily on imports of oil and other basic inputs.

Examples of early impacts include:

• In South Korea, residents rushed to buy trash bags, while the government urged reduced use of single-use items at events.
• In Taiwan, authorities opened hotlines to assist plastic-short producers, and rice farmers said they may need to raise prices because they cannot obtain vacuum packaging.
• In Japan, the oil crisis raised concerns that chronic kidney disease patients might face disruptions to dialysis treatment due to a shortage of medical-grade tubing.
• In Malaysia, glove manufacturers warned of a shortage of a petroleum-derived byproduct used to produce natural latex gloves, threatening global supplies of medical gloves.

Dan Martin, co-head of the business information unit at Dezan Shira & Associates, said pressure is spreading across consumer goods categories, from beer and instant noodles to snacks, toys, and cosmetics. He attributed the problem to increasing scarcity of inputs such as plastic caps, containers, snack packaging, and various boxes, noting that petroleum-based products are also key inputs for adhesives used in footwear and furniture, lubricants for machinery, and solvents used in paints and cleaning processes.

Analysts warn of inflation pressure and slower growth

Analysts say volatility in commodity markets and the manufacturing sector is raising global inflationary pressures while weighing on economic growth. Higher energy and input costs can force manufacturers to absorb more expenses, compress margins, and pass some costs to consumers through higher prices.

Rising fuel prices are also disrupting transportation and logistics. In addition, supplies of other Middle East materials such as fertilizers and helium have tightened, potentially pushing up prices for food and electronics.

In a March 30 blog post, the International Monetary Fund (IMF) said spillover effects are occurring at a time when many economies have limited capacity to absorb further shocks. The IMF said the common thread is “higher prices and slower growth.”

Naphtha shortages and limited alternatives

Some countries have started drawing record amounts of oil from emergency reserves to limit the impact. However, supply pressures now extend beyond crude oil to a shortage of naphtha, a petroleum-derived product and key input for producing polymers. Compared with crude oil, producers’ naphtha stocks are far lower and there are few substitutes.

In Asia, where dependence on the Middle East accounts for more than half of naphtha supply, some petrochemical companies have cut production due to input shortages. Some firms said they cannot deliver or fulfill contracts as agreed because of circumstances beyond their control.

South Korea, for example, imported the first lot of naphtha from Russia since the Ukraine conflict began, taking advantage of the United States’ pause in sanctions on certain oil and oil products from Russia. At the same time, Seoul banned exports of naphtha to prioritize domestic supply.

Martin said the naphtha shortage is driving up input costs, particularly for producers requiring stringent standards, including semiconductors, automotive components, medical packaging, and food packaging. He added that companies have few options other than cutting assembly lines and conserving energy as they compete to secure supplies.

Data on price moves and packaging strain

As producers rush to secure inputs, prices for plastic and related products have risen. ICIS data show Asian plastic resin prices rising by as much as 59%, reaching record highs since late February when the US and Israel began air strikes on Iran.

Other reported price and supply pressures include:

• In Thailand, one of the country’s largest plastic packaging wholesalers raised prices by 10% for transparent plastic bags used in restaurants, eateries, and take-out services.
• In India, local media reported rising bottled water prices as plastic cap costs rose fourfold since the Iran conflict began.
• Nongshim, Korea’s largest instant noodle producer, said its plastic packaging supplier has only about a month’s supply left.

Shariene Goh, a senior analyst at ICIS, said consumer goods that rely heavily on plastic packaging—such as cosmetics—may be more prone to shortages than products that use other plastics. She noted that downstream firms may temporarily rely on existing inventories, but those inventories will eventually run out, increasing the risk of shortages.

Spillover to other regions

Asia was the first to feel the energy shock, and supply pressures there could signal broader effects elsewhere if oil and other inputs cannot be produced or shipped from the Middle East.

Morgan Stanley said the Middle East is not only a major supplier of naphtha and plastics but also plays a critical role in many other inputs. It accounts for about 17% of global naphtha and 30% of plastics, along with 45% of sulfur used to produce fertilizers, 33% of helium used in chip, medical, and aerospace manufacturing, and 22% of urea and ammonia used for crops.

The crisis has begun to spill beyond Asia. In the United States, farmers are paying more for fertilizer as the price of imported urea has risen by about one-third since the conflict began.

In a report released last week, JPMorgan analysts said the shock is not uniform but unfolds in waves, similar to the Covid-19 period, with supply disruption gradually spreading from Asia to other regions. They warned that supply pressure could worsen in April as the last remaining barrels of crude are shipped and reach ports early in the month, adding that the biggest challenge is not only higher prices but the real risk of shortages in the market.

Corporate responses and cost-cutting measures

Some consumer goods producers are delaying raw material purchases to see whether prices ease if the Middle East conflict cools.

In eastern China, Qiu Jun, 36, who owns a polyester production facility in Haian City, said the disruption to Hormuz Strait shipping has pushed the price of polyester staple used for fabric production up by about 50%. He said customers in home textiles, apparel, and fiber sectors are not accepting the price increases.

In Indonesia, the Indonesian Packaging Federation said plastic prices have doubled in the past month, prompting some companies to reduce packaging thickness. Some firms are considering replacing plastic with paper, glass, aluminum, or recycled plastic, though the federation said each alternative has challenges, including durability, safety compliance, and the time needed to retool production lines and secure new supply—processes that can take six months to a year.

Stephen Moore, founder of the trade data platform MLT Analytics, said switching to alternative plastics can also raise costs. He noted that global supply of recycled plastics and bioplastics is limited, and that bioplastics often cost 5–7 times more than fossil fuel-based plastics. Moore added that even if Hormuz shipping returns to normal quickly, Asia’s plastics industry would still need at least a few months to partially return to normal.