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Naphtha prices may keep you up at night, but perhaps they should, given that inflation from the U.S.-Iranian war and the closure of the Strait of Hormuz has yet to hit the economy.
As gasoline prices continue to rise, crude oilthe cost of petroleum derivatives (petrochemicals) is also rising, which could ultimately have a far wider impact on consumers than gasoline prices.
A petrochemical cauldron sounds like a study guide for a high school chemistry class. Benzene, butadiene, ammonia, styrene, naphtha, and many other petroleum-based byproducts. Known in industry parlance as ingredients, they are used in everything in life, from hospital gloves to pasta packaging. And the costs of these chemicals are rising, even if consumers don’t notice for a while.
But Stanislaw Krikun, CEO of Poland-based packaging company DST-Pack, is already seeing it on the factory floor. “Chinese plastics suppliers have recently increased prices by about 15%, citing rising raw material costs and overall market uncertainty as reasons for this,” Kreikun said.
Kreikun’s factory makes packaging for companies around the world, including the United States, and he’s now seeing the price increases that consumers will see later.
Most people aren’t paying attention to advent calendars right now. Advent calendars are chocolates hidden under perforated punch-outs to celebrate each day of the season. But Kraikun thinks about it.
Already orders are surging for the 2026 Christmas holiday season, and these calendars, which often include molded plastic trays, are expected to be even more expensive.
“We are currently working on the production of advent calendars with dozens of clients, many of whom are in the sampling or early production stages. Recent developments have meant that we have had to recalculate costs on many of these projects, especially due to rising plastic prices. This directly impacts the cost of these inserts,” said Krikun.
One important thing to understand is that the effects of these price increases will not be felt immediately. “It’s pretty gradual,” Kreikun said. Companies that had already confirmed production and locked in prices for upcoming shipments were still able to proceed at previous cost levels. “However, all new orders placed in the past few weeks have already been quoted at a higher price,” Kreikun said.
“Packages have to be manufactured, shipped to manufacturers, filled with product, and then distributed to retailers. Therefore, price changes typically appear on shelves after some delay, rather than immediately,” Kreikun added.
Trillions of dollars of everyday goods affected
Once the lag is resolved, its effects will be felt almost everywhere and in everything.
“Petrochemicals have a wide variety of uses and essentially affect everything we use and consume,” said Tom Senn, assistant professor of professional practice in energy finance at Texas Christian University’s Ralph Lowe Energy Institute. “The amount of plastic used just in the production of cars and trucks is huge,” he added.
Of the 193 petrochemical complexes in operation in the Middle East, around 79% are located in Saudi Arabia, Iran and Qatar, with Saudi Arabia alone accounting for 75% of the production capacity.
He added that the Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) together produce about 12% of the world’s petrochemicals, or 150 million tonnes annually.
All of these petrochemical products are largely dependent on the Strait of Hormuz to transport their products.
“There are a lot of everyday items that will be affected,” said Jeff Krimmel, founder of energy consultancy Krimmel Strategy Group.
Mr Krimmel said petrochemical shortages and price increases would impact textiles, detergents, food and beverages.
“Much of the world is packaged and shipped in various forms of plastic,” Krimmel said.
All of these plastics are derived from petroleum-based feedstocks such as naphtha, propylene, methanol, ammonia, and styrene. Although there are some by-products available elsewhere, Middle East oil fields are the largest source of naphtha and there is no substitute for it.
“Naptha is a very important, more abundant, liquid-based feedstock that is produced in a cascade throughout the economy,” Krimmel said.
Even if the fighting ends quickly, it will take time for backend supply and demand to normalize. The longer the hostility persists, the more problems will accumulate. So no consumer is likely to breathe a sigh of relief anytime soon, Krimmel said.
Increase in consumer price inflation, increase in low-income stress
Atsi Sheth, chief credit officer at Moody’s Ratings, said this was just the latest shock for the petrochemical industry, which has seen several shocks in recent years, from the coronavirus to Ukraine, the Red Sea crisis and now the Strait of Hormuz. But the biggest shock, he said, was that China was ramping up its petrochemical output, and global oil companies, sensing an opportunity for vertical integration, began ramping up production.
“Moody’s is saying there’s a supply shock. There’s too much supply and not enough demand,” Sheth said. As a result, Moody’s has issued a number of downgrades to producers as oversupply eats into margins and reduces their ability to service debt. But once current inventories are depleted, the shock will quickly swing in the other direction, he said, with inflation expected to accelerate as the year progresses.
“Our inference is that this will ultimately have an impact on consumer price inflation. Food, clothing and other retail goods will hit people at the lower end of the income scale,” Sheth said.
Peter Swartz, chief scientific officer and co-founder of supply chain analytics firm Altana, said markets are now pricing in uncertainty and the long-term effects will include higher prices no matter what happens on the battlefield. “We are seeing long-term effects. All companies are now planning for a more uncertain future and investing in diversification, but this comes at a cost,” Swartz said.
Shocks to the petrochemical market, such as those currently occurring, have multiplier effects. Because petrochemicals are used in tens of trillions of dollars of goods, which in turn are used in tens of trillions of dollars of other goods. Because they all rely on the same petrochemical soup. “There’s no magic, easy replacement for these products,” Swartz said.
According to Altana data, $733 billion in petrochemicals, intermediates, and finished products (22% of the world’s total supply, including ethylene, propylene, butadiene, benzene, toluene, xylene, methanol, glycols, MTBE, epoxides, acetic acid, acrylic acid, PTA, acrylonitrile, melamine, etc.) flows through the Gulf. This has downstream effects on $3.8 trillion worth of products, from toothpaste to towels.
Meanwhile, Kreikun is alarmed by the fluctuations in orders for plastic packaging, saying that at least customers will notice fewer packages, but not lower prices. “We’re seeing brands making very real adjustments,” he said. For example, a skin care brand may move from a more complex box structure to a simpler box structure. Phone accessory brands may reduce internal packaging components or redesign structures to use less material.
“Even for products like boxed chocolates, brands are simplifying internal layouts and overall structures to control costs,” Krikun said.
But time is not on the producer’s side.
“Reducing packaging complexity or redesigning its structure is not a quick process; it often requires development work, testing, and approval cycles that can take weeks or even months,” Krykun said.
Brands often don’t have enough time to completely redesign their packaging before the next production run. As a result, they are often forced to place their next large order at a higher price while simultaneously working on alternative, more cost-effective packaging solutions.
