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• Can leverage privileged hydrocarbon access
• Chance to steal march on Chinese rivals
• Petrochemicals vital to Vision 2030

Speculation of a peace deal between the US and Iran has increased hopes for a turnaround in Saudi Arabia’s struggling petrochemicals sector, which analysts say is likely to see profits increase this year despite disruptions caused by the war.

The effective closure of the Strait of Hormuz has severely limited petrochemical exports from the Gulf as well as the raw materials needed to make them, putting pressure not just on regional producers but on chemical companies across the world.

Should the strait reopen, analysts believe Saudi producers are best placed to get their products to market with healthy profit margins while rival companies struggle to access raw materials.

“Higher oil prices in the current environment are net positive for Saudi petrochemical producers,” said Tahir Abbas, the head of research at Ubhar Capital, an investment company in Oman.

With the price of oil projected to remain high into next year, Saudi companies can leverage their privileged access to hydrocarbons, he said.

“The impact on Q2/Q3 earnings is expected to be positive,” said Abbas, “driven by higher oil-linked product prices.”

It would give Saudi petrochemical exporters an opportunity to steal a march on their Chinese competitors, which have rapidly expanded production in recent years but are now struggling with rising raw material prices.

Reuters/Chen Aizhu

Expansion of China’s petrochemical capacity in recent years has transformed the market, pushing down sales prices and squeezing profit margins.

“Going into the crisis, the sector was in its worst phase in many decades in terms of oversupply,” said Anoop Fernandes, vice-president of research at Bahraini bank Sico.

In a few years, China’s capacity to produce certain petrochemicals has grown larger than its domestic demand, leading to a glut of chemicals such as polypropylene, used to make plastic packaging.

Amid this oversupply, Saudi petrochemical companies reported a decline in profits last year. The largest listed producer, state-owned Sabic, fell into negative territory with a loss of SAR26 billion ($7 billion).

The sector had previously been expected to report even worse balance sheets for this year and next, said Fernandes.

April to March saw the steepest ever monthly rise of the Global ICIS Petrochemical Index, which tracks the prices of global chemical products, driven by a loss of Gulf petchems as well as the oil resources needed to make them, such as naphtha.

Asia imports around 60 percent of its naphtha from the Middle East, according to ratings agency S&P Global.

ICIS says this loss of supply is likely to be felt well into 2027.

Vital to diversification

The petrochemical industry is vital to Saudi Arabia’s diversification goals, Fernandes said. In 2024, petrochemicals accounted for SAR149 billion, more than a third of the country’s non-oil exports, according to the Saudi Press Agency.

“It brings in dollars and there’s a competitive advantage that Saudi has,” said Fernandes. “Instead of selling just crude and gas, you’re selling a variety of products.”

The closure of the Strait of Hormuz, however, has left Saudi producers with no viable method to export petrochemicals at pre-war volumes. 

“The logistical infrastructure in Saudi is obviously not designed to take this sudden supply from the east to the west on trucks,” said Yousef Husseini, vice president and head of chemicals at Egyptian investment bank EFG Hermes.

The ceasefire between the US and Iran has created hope for a reopening of vital shipping lanes through the strait. On Monday, US President Donald Trump posted on social media that 34 ships had successfully navigated the waterway, prompting a drop in oil prices below $100.

Further reading:

• Beyond Hormuz: how war is reshaping supply chains

• Clouds still not lifting on Saudi petrochem industry
• Chinese-Saudi investment is not quite a two-way street

Should shipping lanes reopen for Saudi petrochemical exports, “that first shipment is going to be very fast”, said Husseini, citing the number of laden tankers in the blockaded strait waiting to go to market.

Even for facilities that have shut down or reduced output, analysts expect them to return to pre-war volumes quickly.

Sadara Chemicals Company, a joint venture between state-owned oil company Aramco and US chemicals manufacturer Dow, announced a temporary shutdown on March 31, a decision it said would impact its 2026 balance sheet.

While the output loss will naturally have a negative impact on revenues, restarting such facilities does not typically take long, according to Husseini.

“In most cases, it’s a days-to-weeks process,” he said.