Geopolitical Conflicts Cause Unexpected Disruptions, Petrochemical and Chemical Sector Landscape Reshaped

What are the transformation strategies behind AI · The resilience of the “Three Big Oil” companies’ performance?

By Qin Jiali

Edited by Li Zhuang

Affected by Middle Eastern geopolitical conflicts, international crude oil prices have experienced sharp fluctuations, significantly impacting the petroleum, petrochemical, and related industries.

Recently, ongoing conflicts in the Middle East have directly driven up global oil prices and transportation costs for chemical products, potentially reshaping the global supply and demand landscape for energy and chemicals.

Institutions like Everbright Securities believe that there are three main investment themes worth noting: first, the oil and gas sector, including the “Three Big Oil” companies, with long-term value highlighted in upstream oil and gas, oil services, and transportation; second, focusing on chemical products with significant production capacity in the Middle East and Europe, such as methanol, urea, potash, olefins, methionine, and vitamins; third, exploring alternative routes to oil—namely, coal chemical industry.

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International crude oil prices fluctuate sharply

Long-term value of oil and gas, oil services companies highlighted

Since February 28, due to continuous conflicts in the Middle East and the suspension of production at major oil fields in several Middle Eastern countries, international crude oil prices have surged. Brent crude futures hit $119.50 per barrel on March 9, nearly a 95% increase from the beginning of the year.

Since March 9, the G7 countries announced discussions on jointly releasing emergency oil reserves. Additionally, former President Trump recently stated that some oil sanctions would be temporarily lifted and that U.S. military actions against Iran are “about to end,” causing crude prices to fluctuate. As of March 11, Brent crude futures briefly retreated to around $90 per barrel but remain at a stage high since April 2024.

Research reports from Debon Securities suggest that recent market adjustments may be due to expectations that the Middle East situation will not resolve quickly in the short term, prompting risk-averse market behavior. Oil, shipping, and coal sectors benefit from geopolitical conflicts and rising prices, presenting short-term trading opportunities. However, caution is needed against “buying the rumor, selling the fact” patterns. High-frequency data such as EIA crude oil inventories and Strait of Hormuz developments should be monitored. If the Strait’s closure exceeds expectations, it could trigger a global inflation rebound and suppress overall stock market valuations; conversely, easing conflicts could lead to rapid corrections in resource prices.

Looking back at the first three quarters of 2025, the performance of major international oil and gas giants generally declined due to falling oil prices and sluggish refining margins. During this period, China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC), and Sinopec reported net profits attributable to parent company shareholders of 126.279 billion yuan, 101.971 billion yuan, and 29.984 billion yuan, respectively, with year-on-year changes of -4.90%, -12.59%, and -32.23%.

According to Everbright Securities, the overall increase in geopolitical risk premiums is expected to sustain higher oil prices for some time. As state-owned giants in upstream oil and gas, the “Three Big Oil” companies and oil service firms have demonstrated performance resilience during periods of rising oil prices. In the new cycle of oil price fluctuations since 2023, benefiting from increased production and strong cost control, China National Petroleum, China National Offshore Oil, and Sinopec have posted better profit levels than many overseas counterparts, showing resilience even during price declines.

In their Q3 2025 reports, these companies generally stated that they are increasing reserves and production, promoting refining transformation and upgrades, maintaining profitability. For example, China National Petroleum indicated that during the reporting period, the company adjusted and optimized production and operation strategies, strengthened exploration and development, advanced refining upgrades, and diversified into new energy sectors like wind, solar, geothermal, and hydrogen, resulting in better-than-expected performance.

Meanwhile, the “Three Big Oil” companies have continuously increased their production. In the first three quarters of 2025, China National Petroleum, CNOOC, and Sinopec’s oil and gas equivalent production were 1.377 billion barrels, 578 million barrels, and 394 million barrels, respectively, with year-on-year growth of 2.6%, 6.7%, and 2.2%.

Their related costs further decreased. China National Petroleum reported that its unit operating cost of oil and gas was $10.79 per barrel in the first three quarters of 2025, down 6.1% from the same period last year. CNOOC indicated that its main costs per barrel were $27.35, a 2.8% decrease year-on-year.

Additionally, leading refining companies have accelerated downstream and midstream transformation, promoting low-cost “oil-to-chemical” conversion and high-value “oil-to-specialty” products, while expanding high-margin chemical products. For example, China National Petroleum’s Q3 2025 report states that its refining, chemicals, and new materials segments achieved operating profits of 16.24 billion yuan, up 9.6 billion yuan from the previous year.

Production of the “Three Big Oil” companies has continued to grow. In the first three quarters of 2025, their oil and gas equivalent output was 1.377 billion barrels (CNPC), 578 million barrels (CNOOC), and 394 million barrels (Sinopec), with respective increases of 2.6%, 6.7%, and 2.2%.

Costs for these companies have also been reduced. China National Petroleum reported that unit operating costs decreased from the previous year, with oil and gas costs at $10.79 per barrel, and CNOOC’s main costs at $27.35 per barrel.

Furthermore, major refining companies are actively transforming their downstream and chemical businesses, focusing on high-value products and new energy sectors. For example, China National Petroleum’s refining and chemical segments reported a profit of 16.24 billion yuan in Q3 2025, a significant increase.

In addition to oil and gas producers, oil service companies have also shown improved operational quality. In the first three quarters of 2025, performance varied among oil service firms, but CNOOC Services (601808.SH) and CNOOC Development (600968.SH) achieved net profits of 3.209 billion yuan and 2.853 billion yuan, respectively, with year-on-year growth of 31.28% and 6.11%.

From the perspective of gross profit margins, the oil service subsidiaries of the “Three Big Oil” companies have generally improved. According to Wind data, in the first three quarters of 2025, China Oilfield Services, CNOOC Engineering, CNOOC Development, and Sinopec Oilfield Service’s gross margins were 18.20%, 14.38%, 16.16%, and 8.42%, respectively, up 0.96, 2.61, 1.54, and 0.50 percentage points year-on-year.

It is worth noting that with domestic policies driving continuous optimization of the refining industry structure, smaller and medium-sized refining capacities are being phased out, benefiting large refining giants. Recent policies from the National Development and Reform Commission and other departments include the “Work Plan for Stabilizing Growth in the Petrochemical and Chemical Industry” and the “Special Action Plan for Energy Conservation and Carbon Reduction in the Refining Industry,” which aim to eliminate units with a capacity of 2 million tons/year or less by 2025, limiting total crude processing capacity to under 1 billion tons.

According to Everbright Securities, under supply-side constraints, significant new refining capacity will be limited, and existing project reserves will mark the end of capacity expansion in China. As the refining industry accelerates “anti-involution,” capacities of 2 million tons or less are expected to be phased out, allowing large-scale companies like China National Petroleum and Sinopec to benefit. Additionally, recent domestic reserves and production increases have kept oilfield services buoyant, further benefiting the “Three Big Oil” subsidiaries.

Supply-demand disruptions

Focus on chemical products with significant Middle Eastern capacity

Due to disruptions in Iran and other Middle Eastern countries’ chemical production and exports, supply tightens and prices rise. Moreover, in the context of soaring oil and gas prices, European chemical capacities may face energy costs rising sharply, leading to reduced production loads. Therefore, chemical products with large capacities in the Middle East and Europe, such as methanol, urea, potash, olefins, methionine, and vitamins, warrant close attention.

Taking potash as an example, the Middle East is a key global supplier. According to Everbright Securities, in 2024, Israel and Jordan produced 2.4 million tons and 1.8 million tons of potash, accounting for 8.8% of global output. The Strait of Hormuz blockage could impact exports from Middle Eastern potash producers, potentially pushing prices higher.

China is the world’s largest demand market for potash. Since 2025, domestic potassium chloride markets have remained tight. As of late January 2026, the average market price was 3,295 yuan/ton, up 0.4% from the previous month and 27.52% year-on-year, indicating strong price support.

Major domestic producers include Salt Lake Co., Ltd. (000792.SZ) and Zangge Mining. Salt Lake, a core enterprise under China Minmetals, announced that its 2025 capacity for potash will reach 5 million tons, ranking fourth globally. It also has an annual lithium carbonate capacity of 80,000 tons and leads in lithium brine extraction.

As early movers in overseas potash development, Yake International (000893.SZ) and Dongfang Tietuo (002545.SZ) are key producers in Laos, supplying domestic markets. Yake owns 263.3 square kilometers of potash mining rights in Laos, with an estimated 1 billion tons of pure KCl resources. Dongfang Tietuo holds 133 square kilometers of rights, with over 400 million tons of resources. By the end of 2024, capacities are approximately 2 million tons/year (Yake) and 1 million tons/year (Dongfang Tietuo).

Benefiting from favorable market conditions, leading potash companies are expected to see high growth in 2025. For example, Salt Lake projects a net profit attributable to shareholders of 8.29 to 8.89 billion yuan, up 77.78% to 90.65%. Rising prices of potash and lithium products have driven year-end performance.

Recently, Salt Lake acquired a 51% stake in Minmetals Salt Lake, injecting high-quality resources. In December 2025, Salt Lake announced plans to purchase this stake for about 4.605 billion yuan, further expanding its control over lithium and potash resources, with expectations of enhanced profitability.

In January, the asset transfer was completed, and the stake was registered under Salt Lake’s name, consolidating the company’s assets.

Besides the balanced supply and demand in the potash market, ethylene downstream products like polyethylene are also key export chemicals for Iran and other countries. According to Jinlianchuang data, Iran’s polyethylene capacity is about 4.5 million tons, making it China’s largest source of LDPE imports. In 2025, China’s imports from Iran are expected to reach 1.125 million tons of PE and 443,800 tons of LDPE (14% of total LDPE imports), with evolving regional dynamics impacting China’s olefin industry.

As a core intermediate in petrochemicals, rising oil prices tend to transmit to the olefin chain. Wind data shows that in the week of March 6, 2026, the average prices of acrylic acid, butyl acrylate, and polypropylene granules were 7,950 yuan/ton, 10,000 yuan/ton, and 7,625 yuan/ton, respectively, with weekly increases of 33.61%, 28.21%, and 16.06%. Similarly, polyethylene, ethylene glycol, and ethylene oxide prices were 7,509 yuan/ton, 4,263 yuan/ton, and 6,190 yuan/ton, with weekly gains of 12.41%, 16.06%, and 12.14%.

In the olefins sector, Satellites Chemical (002648.SZ) is a leading integrated producer of light hydrocarbons in China, establishing a controllable global supply chain. The company produces functional chemicals, high polymers, and new energy materials using green processes and promotes CO₂ and hydrogen utilization. According to its 2025 semi-annual report, in the C2 segment (ethane-based ethylene and derivatives), it has developed a comprehensive downstream chemical product matrix, with capacities of 1.82 million tons of ethylene glycol, 500,000 tons of polyethers and surfactants, 200,000 tons of ethanolamines, and 150,000 tons of carbonates, with ethanolamine and polyether capacities ranking first and second nationwide, each holding over 20% market share. In the C3 segment (propylene-based deep processing), it has built the largest and second-largest capacities for acrylic acid and esters globally. The 2024 launch of the new materials and energy integration project at Pinghu, with an annual capacity of 800,000 tons of polyols, has further enhanced high-value utilization of propylene, consolidating Satellites’ influence in the acrylic acid market.

In the first three quarters of 2025, Satellites Chemical maintained performance resilience, with net profit attributable to shareholders reaching 3.755 billion yuan, up 1.69% year-on-year.

Cost advantages in coal chemical industry expand

Leading companies show performance resilience

Amid high international oil prices, the cost pressures on the global petrochemical supply chain have intensified, prompting a restructuring of energy and chemical pricing systems. Everbright Securities notes that recent energy price volatility has made high oil prices a key variable. Driven by multiple factors such as cost advantages, industry substitution, and structural optimization, the coal chemical sector’s performance resilience and investment value continue to rise. In the current environment, high oil prices provide clear upward momentum for coal chemicals, warranting focused attention and strategic deployment.

Take Baofeng Energy (600989.SH) as an example, a leader in coal-to-olefins. Its capacity has been expanding significantly. By 2025, Baofeng Energy’s capacity includes 7 million tons of coke and 520,000 tons of coal-based olefins annually, with a highly integrated industry chain. Its Inner Mongolia project, with 2.6 million tons of coal-to-olefins and 400,000 tons of green hydrogen coupling, is on track to start production, making it the largest coal-to-olefins producer in China.

As the largest single-site coal-to-olefins project globally, the Inner Mongolia plant has unlocked growth potential for Baofeng Energy. In 2025, the company expects net profit attributable to shareholders of 11 to 12 billion yuan, up 73.57% to 89.34%.

Leveraging its own coal resources, Baofeng Energy benefits from significant cost advantages. Despite declining sales prices of olefins over the past year, raw material costs such as coal have fallen sharply, easing cost pressures. Data shows that in the first three quarters of 2025, the average purchase prices for gasified raw coal, coking coke, and thermal coal were 448.26 yuan/ton, 740.35 yuan/ton, and 324.67 yuan/ton, respectively, down 19.02%, 31.82%, and 23.99% year-on-year.

In addition to the Inner Mongolia project, Baofeng Energy has abundant reserves and ongoing or planned projects in Xinjiang and Ningdong, which are expected to further boost growth.

Moreover, Huayu Hengsheng (600426.SH), another leading coal chemical enterprise, relies on a clean coal gasification platform to develop a diversified industry chain, with significant scale in urea, organic amines, and acetic acid.

In the first three quarters of 2025, Huayu Hengsheng’s net profit was 2.374 billion yuan, down 22.14%. While some products faced weak prices, increased sales of chemicals and new energy materials mitigated short-term impacts. Sales of chemical fertilizers and new energy materials reached 4.33 million tons and 2.16 million tons, up 35.45% and 13.83%, respectively.

Meanwhile, raw material prices such as coal and benzene have decreased, alleviating cost pressures. Data shows that in the first three quarters of 2025, the average prices for anthracite and bituminous coal were 914 yuan/ton and 775 yuan/ton, down 17.92% and 6.99%.

Huayu Hengsheng is actively advancing new projects to ensure long-term growth. In August 2025, it announced the commissioning of key units at its Jingzhou base, including 200,000 tons of BDO, 160,000 tons of NMP, and 30,000 tons of PBAT biodegradable materials, along with upgrades to its gasification platform to support strategic development.

(This article was published in the March 14 issue of “Securities Market Weekly.” The stocks mentioned are for illustrative purposes only and do not constitute investment advice.)