The Israel-Iran conflict continues: Who in the domestic market is raising prices? Who is under pressure?

The conflict between the U.S., Iran, and Israel is ongoing. Iran is a major global oil exporter and a supplier of chemicals like methanol, while also controlling the crucial Strait of Hormuz, a vital passage for global energy shipping. The current turmoil continues to impact the global energy supply chain.

Over the past 12 days, international oil prices have experienced a rollercoaster.

On March 9, the WTI main contract reached a high of $119.48 per barrel, and Brent crude briefly hit $119.5 per barrel, marking a temporary peak.

However, the rally quickly reversed on March 10-11, with prices dropping over 10% in two days. By the morning of March 11, Beijing time, WTI futures closed at $83.45 per barrel, and Brent futures at $87.8 per barrel.

WTI crude oil futures chart. Source: Investing.com screenshot

In recent days, oil prices have collectively declined, mainly influenced by U.S. policy signals and international coordinated interventions. According to Xinhua News Agency, U.S. President Trump announced on March 9 at a press conference that, due to market volatility caused by U.S.-Israel military actions against Iran, he decided to lift some sanctions on Iranian oil to stabilize prices.

On the same day, the International Energy Agency (IEA) Director Fatih Birol convened an emergency G7 meeting to discuss the possibility of jointly releasing oil reserves under IEA coordination.

Besides crude oil, disruptions in Strait of Hormuz shipping and Qatar Energy’s announcement of production halts have significantly driven up global natural gas prices. European natural gas prices surged 63% last week, the largest weekly increase since the Russia-Ukraine conflict erupted in March 2022.

As a major energy and chemical power, how has China been affected by this round of crises?

Oil and Gas Supply: Overall Risks Are Manageable

Although China relies heavily on oil and gas imports, its large reserves provide strong resilience in the supply chain. Industry experts generally believe that the Middle East situation will have limited short-term impact on China’s oil and gas markets.

Erica Downs, senior researcher at Columbia University’s Center on Global Energy Policy, said, “China has been building and filling strategic reserves for twenty years specifically to handle such moments. China has 1.4 billion barrels of crude oil stored, and even if all Middle Eastern imports are cut off for six months, China still has enough reserves to maintain supply.”

However, domestic refineries heavily dependent on Middle Eastern crude face significant supply disruptions, which could cause larger impacts.

Consumers of domestic refined oil have also felt the direct effects of rising prices. On March 9, domestic refined oil prices increased for the fourth consecutive time, with a small car’s 50-liter tank costing about 27.5 yuan more than before, the largest increase in four years. Several crude oil analysts told Jiemian News that the next price adjustment is likely to see further increases.

Regarding natural gas, Kpler analyst Xiong Neng told Jiemian News that, as of the end of February, China’s liquefied natural gas (LNG) inventory was estimated at about 53%. Even if imports from Qatar and the UAE are cut in April, inventories are expected to decline only slightly to around 50% by the end of April.

“Longer-term supply disruptions could be supported by underground storage. Based on existing underground storage levels, China could buffer Qatar supply interruptions for up to eight months,” he said.

Under multiple international and domestic factors, LNG prices in China have also experienced a rollercoaster since March.

According to data from Business Society, driven by fears of supply disruptions caused by geopolitical conflicts, domestic LNG prices surged to 4,926 yuan/ton. But as international market sentiment cooled and downstream acceptance of high prices declined, prices retreated. On March 11, the national benchmark price closed at 4,426 yuan/ton, down 10.15% in a single day. Overall, the LNG market currently shows strong expectations but weak reality.

Additionally, industry experts generally believe that the long-term supply-demand structure of global oil and gas markets remains unchanged, and prices will eventually return to rational levels.

Chemical Market: Facing Cost Transmission Pressures

Zhao Naidi, chief analyst of Petrochemical and Chemical Transportation at Everbright Securities, pointed out in a research report that rising oil and gas import costs and freight rates will transmit cost pressures along the industry chain, squeezing profits for downstream companies like refining.

According to Futures Daily, taking polypropylene (PP) as an example, every $10 increase in crude oil prices per barrel raises production costs by nearly 400 yuan per ton. Propane, a core raw material for PDH plants producing PP, accounts for 70-80% of production costs. China imports 28.57 million tons of propane annually, with 6-7% from Iran. The blockade of the Strait of Hormuz hampers propane transportation, further increasing costs for related companies.

This also accelerates the rise of China’s chemical product price index (CCPI).

Specifically, major chemical products like methanol and sulfur, which depend heavily on Middle Eastern and Iranian imports—over 50% of their sources—have seen prices rise since early March.

As of the night of March 10, futures prices for these products increased: methanol up 16.45% since March 2, polypropylene up over 18%, and propylene up over 20%.

However, as market sentiment cooled, prices generally declined on March 10. Methanol futures fell 7.58%, polypropylene down 2.34%, and propylene down 2.42%.

Senior analyst Ma Yingjun of Zhuo Chuang Information noted that products like methanol, ethylene glycol, phenol, and sulfur, with over 50% dependence on Middle Eastern sources, led the price increases—some by 40-50%. These are mainly driven by supply interruption expectations. Phenol and BPA, facing actual supply shortages from the Middle East, maintained firm prices. Other products, influenced mainly by cost sentiment, are more vulnerable to oil price fluctuations.

Zhuhai-based analyst Xue Fei told Jiemian News that although methanol prices have retreated from recent highs, the supply-demand pattern remains unchanged.

Zijin Tianfeng Futures pointed out that domestic methanol operating rates are near recent highs, with high port and inland inventories. The low profit margins of downstream methanol-to-olefins (MTO) may trigger negative feedback, and price increases are more based on expectations than actual tight supply and demand. Geopolitical risk premiums should be viewed rationally.

A related staff member at Oriental Shenghong told Jiemian News that this round of market conditions benefits the company’s downstream sales, with products like benzene, sulfur, styrene, and phenol seeing price increases internationally.

Fertilizer Market: Limited Impact

The conflict between the U.S., Israel, and Iran has led to reduced global fertilizer supply and rising production costs, pushing up prices worldwide. For China, although short-term input costs face pressure, policies to stabilize supply and prices help maintain overall stability in the domestic fertilizer market.

The Middle East is a key region for nitrogen, potassium, and phosphate fertilizer supplies.

For example, in urea, Fangzheng Securities reported that the Middle East is a significant player in global urea supply and trade. Iran’s urea capacity accounts for about 3-4% of the world, with annual exports of 4-5 million tons, nearly 10% of global trade. Many Middle Eastern urea plants use gas-based processes, so rising natural gas prices will further increase production costs, affecting international urea prices. According to Ifind data, the average Arab Gulf urea price in March rose to $524 per ton, up 9.6% from February.

Lunzhou Information senior analyst Shi Xuxu noted that the current price rise in compound fertilizers is clearly driven by costs. After the Middle Eastern tensions, global energy and bulk commodity prices were heavily impacted, leading to international price hikes. Domestic raw materials like sulfur, sulfuric acid, phosphate ore, and nitrogen-phosphorus compounds also saw increases, with cost rigidity transmitting directly to fertilizer production, squeezing profit margins and boosting willingness to raise prices.

“Compared to international prices, domestic markets are relatively controllable under policies to stabilize supply and prices, providing some support for domestic food security,” Shi said.

Liu Qiang, nitrogen fertilizer analyst at Zhuo Chuang Information, added that domestic nitrogen fertilizer supply exceeds demand, and to ensure spring farming, factory prices cannot exceed guiding prices. He also said this crisis has limited impact on China’s nitrogen fertilizer market.

A staff member at Hualu Hengsheng (600426.SH) told Jiemian News that due to government controls on fertilizer prices, nitrogen fertilizer prices have remained stable.

From March 2 to the night of March 10, domestic nitrogen fertilizer prices increased by 9.58%, potassium fertilizer by 1.91%, while phosphate fertilizers and phosphates declined by 4.96%.

Nonferrous Metals Market: Divergent Impacts

The current geopolitical conflict has uneven effects on nonferrous metals.

Huatai Securities reported that gold and aluminum are beneficiaries of this conflict. Gold benefits from safe-haven demand and asset reallocation, with projections suggesting prices could reach $5,400–6,800 per ounce by 2026-2028.

Many institutions see aluminum as one of the most benefited commodities. Yide Futures reported that Middle Eastern countries produce about 7.05 million tons of electrolytic aluminum annually, accounting for 9% of global capacity.

They believe that the longer the Middle Eastern crisis persists, the greater the scale of reduced or halted aluminum production in the region. Given the low global inventories, high overseas premiums, and tight supply, the crisis will likely intensify aluminum market tensions.

Huatai Securities also predicts that geopolitical disturbances will slow the growth of aluminum supply in 2026, widening the supply-demand gap and pushing prices higher.

On March 11, LME aluminum prices rose to $3,426.50 per ton, near a four-year high.

Huatai Securities believes copper prices are temporarily suppressed by recession fears. In the medium term, driven by stockpiling, supply disruptions, and increased electricity investment demand, the outlook remains optimistic.

Since March, Shanghai copper futures have generally fluctuated downward, with a total decline of over 1%.

Additionally, due to cautious expectations about Middle Eastern energy storage demand and potential price declines, funds have sought safe havens, causing lithium carbonate futures to fall.

Since March 2, domestic lithium carbonate futures have trended downward overall. On March 11, the main contract dropped 5% intra-day, closing at 155,200 yuan/ton.

(Article source: Jiemian News)