SABIC Faces Naphtha Supply Shock as Strait of Hormuz Closure and Refinery Attacks Disrupt Key Feedstock Flow

The immediate shock to the chemical supply chain is a cascade of targeted attacks and a blocked trade artery. The choke point is the Strait of Hormuz, which is now effectively closed to non-military shipping. This halt has stopped about 12–14 million barrels a day of crude oil and 4 million barrels of refined products from flowing through the narrow passage. For chemicals, this means a direct cutoff of key feedstocks like naphtha and LPG, which are typically exported to Asia. The closure has stranded hundreds of tankers, freezing the movement of liquid hydrocarbons and chemicals.

The attacks have now hit critical processing infrastructure. The Samref refinery in Yanbu, a joint venture between Aramco and ExxonMobil with a capacity to process about 400,000 barrels per day of crude, was targeted in an aerial attack. While operations were reported to have minimal initial impact, the facility is now considered a legitimate target by Iran. This refinery is vital because Yanbu is the only currently open export route for Saudi Arab Light crude as the Hormuz chokepoint closes. Its potential disruption threatens the entire flow of crude to the Red Sea and the naphtha it produces.

Adding to the pressure, the Ras Tanura refinery on the Persian Gulf was shut after a drone strike. This 550,000 barrel-per-day plant is a key supplier of diesel and gasoline, and its closure has already caused a sharp spike in gasoil futures. The shutdown is a precautionary measure, but it further constricts the kingdom's refined product output at a time when alternative export routes are under strain.

The bottom line is a simultaneous squeeze on both crude supply and refining capacity, with the Hormuz blockade cutting off the primary maritime path for exports. This triple threat-targeted refinery attacks, a blocked strait, and a scramble to reroute crude-creates a severe and immediate shock to the availability of chemical feedstocks like naphtha, which are derived from crude and refined products.

Pressure on Key Chemical Commodities

The conflict's ripple effect is now hitting the core of the petrochemical industry, where persistent overcapacity has long squeezed margins. The blockade of the Strait of Hormuz, which halts about 1.2 million barrels of naphtha per day, directly threatens a key feedstock for commodity chemicals. This creates a supply shock for Asian producers, who rely heavily on Middle Eastern naphtha to make plastics like polyethylene. The region's vulnerability is acute, as trade disputes have made it more dependent on these imports.

The pressure is already visible in the market for monoethylene glycol (MEG), a critical ingredient for polyester and antifreeze. The MEG market is structurally oversupplied, but Middle Eastern producers, with their feedstock advantage, have been running above 80% capacity. A disruption to this supply could quickly shift the balance, potentially leading to critical shortages in China, the world's largest consumer. This kind of feedstock crunch could force Asian crackers to idle or switch to more expensive alternatives, directly impacting the cost of downstream products.

For producers, the outlook is a clash between a volatile supply shock and a fundamentally weak demand backdrop. SABIC, Saudi Arabia's chemical giant, exemplifies this tension. The company reported a massive net loss of 25.78 billion riyals in 2025, driven by asset divestments, and its recent quarterly profit still missed analyst forecasts. Its CEO explicitly cited persistent industry overcapacity as a key factor depressing margins. While the company reported a profit in the third quarter, that result was still below expectations and followed a year of losses. This sets a challenging baseline for any margin improvement, making the industry highly sensitive to disruptions that could either tighten supply or further distort pricing.

The impact could extend beyond plastics. The halt in nitrogen fertilizer shipments through the strait poses a separate risk, potentially inflating food prices if supply chains are disrupted for an extended period. Meanwhile, European crackers, which rely on Middle Eastern feedstocks, face a potential supply shock of their own. This could amplify the existing industry downturn, where giants like LyondellBasell are idling capacity and Shell sees little end in sight. For now, the conflict is adding a layer of severe short-term volatility to an already pressured market, testing the resilience of producers already battling overcapacity and thin margins.

The Fragile Red Sea Pivot and Forward Risks

The alternative export route is now a high-stakes gamble on a single, vulnerable artery. Saudi Arabia's primary pivot is the East-West pipeline, which has been pushed to its absolute limit. Sources confirm the system is now operating at full capacity, moving around 7 million barrels per day. This includes 5 million barrels per day of crude exports from Yanbu and an additional 900,000 barrels per day of refined products. Yet, this volume still falls short of the 15 million barrels per day that once flowed through the Hormuz chokepoint. The pipeline's 1980s-era design was a contingency plan, not a permanent solution, and it is now straining to compensate for the lost Gulf exports.

This pivot is already under direct assault. The Red Sea port of Yanbu, the pipeline's critical endpoint, was the target of an Iranian attack just days ago. The strike hit the Samref refinery, a joint venture between Aramco and ExxonMobil that processes about 400,000 barrels per day. While operations resumed quickly, the refinery is now explicitly considered a legitimate target by Iran. This attack is a stark warning that the entire export corridor is exposed. Any further escalation at Yanbu would not only disrupt crude flows but also cripple the local refining capacity that supports the Red Sea economy and produces the naphtha feedstock for chemicals.

The geopolitical risks extend beyond the pipeline's endpoint. Iran has explicitly threatened to open a new front in the Red Sea, warning of a credible threat to the Bab al-Mandeb Strait. This strategic waterway is a gateway to the Suez Canal. If Iran or its proxies, like the Houthis, were to disrupt shipping here, it would force a costly and time-consuming rerouting of tankers through the Suez. Such a move would add weeks to delivery times for chemical feedstocks bound for Asia, further tightening already stressed supply chains.

In practice, the kingdom's ability to sustain this pivot is being tested. The pipeline's capacity is maxed out, and the only viable export route is now a declared target. The situation is a classic case of a fragile solution facing concentrated risk. The system works only as long as the pipeline operates and the port remains secure. Any new attack or broader conflict that threatens the Red Sea or the Bab al-Mandeb would force a painful retreat to even more distant and expensive shipping lanes, deepening the supply shock for chemicals and other commodities. The pivot is a stopgap, not a fix.

Catalysts and What to Watch

The immediate test for the chemical supply chain is whether the fragile Red Sea pivot can hold. The near-term catalysts are clear: monitor the status of the East-West pipeline and Yanbu port exports for any further disruptions from drone or missile attacks. The pipeline is already operating at full capacity, and the port was struck just days ago. Any new attack on the Samref refinery or the port's infrastructure would not only halt crude flows but also cripple the local refining capacity that produces the naphtha feedstock for chemicals. The kingdom's ability to sustain its export plan is being tested daily.

A parallel risk is a potential new choke point. Watch for any official statements from Saudi Arabia or Iran on the Bab al-Mandeb Strait, a potential new front. Iran has explicitly warned of a credible threat to this gateway to the Suez Canal, and the Houthis have signaled readiness to join hostilities. If the Red Sea trade lane is threatened, it would force a costly rerouting of tankers through the Suez, adding weeks to delivery times for chemical feedstocks and deepening the supply shock.

For producers, the most direct signal will come from Saudi Basic Industries Corp. (SABIC). The company's upcoming earnings report will show how the supply shock is affecting its operations. The third-quarter results, while a profit, still missed analyst forecasts and highlighted that industry overcapacity persisted, squeezing margins. Watch for updates on its utilization rates and cost structure. If the disruption forces SABIC to idle capacity or switch to more expensive feedstocks, it will be a clear sign that the supply shock is translating into real cost pressures for the industry.

The bottom line is that the situation is a series of high-stakes gambles. The pipeline is maxed out, the port is a declared target, and a new front could open at any moment. The chemical market's ability to navigate this will depend on the stability of these physical choke points and the financial resilience of key players like SABIC.