Since the outbreak of the Israel-Palestine conflict in October 2023, the continued spillover of geopolitical risks in the Middle East, the repeated escalation of the Red Sea shipping crisis, the extension of OPEC+ deeper-than-expected production cuts, and the escalating frictions between Iran and Western camps have combined to completely break the fragile balance of the global crude oil market. As a core pillar industry downstream of the petrochemical industrial chain, the global plastics industry is facing the most severe systemic shock since the 2020 pandemic — from the rigid rise in costs at the upstream raw material end, to the violent price fluctuations in the midstream trade link, and then to the failure of cost transmission for end products downstream, even extreme market phenomena such as the severe shortage of garbage bags in South Korea have emerged. This paper provides an in-depth analysis of the three-level transmission logic of “Middle East situation – oil price fluctuations – plastics industry”, combined with real market cases in different regions around the world, to analyze the short-term impact of the industry, the regional differentiation pattern, and the core opportunities for long-term transformation.

I. Underlying Logic: The Middle East Situation is the Core Anchor for the Global Crude Oil and Plastics Industrial Chain

The plastics industry is far more closely bound to the crude oil market than most manufacturing industries: more than 90% of the world’s general-purpose and engineering plastics are petroleum-based products, crude oil is the source raw material of the entire industrial chain, and the price linkage along the whole chain from crude oil to end plastic products is extremely strong. The geopolitical situation in the Middle East is the core variable determining the global crude oil supply, pricing and risk premium, as well as the underlying driver of the cyclical fluctuations of the plastics industry.

From the perspective of industrial fundamentals, the Middle East holds 48% of the world’s proven crude oil reserves, OPEC+ member countries contribute more than 35% of the global crude oil output, and core oil-producing countries such as Saudi Arabia, Iraq, the United Arab Emirates and Iran are all concentrated here. Two “lifelines” of global energy trade are also located in and around the Middle East: the Strait of Hormuz, through which 17 million barrels of crude oil pass every day, accounting for 30% of the global seaborne crude oil trade; and the Bab el-Mandeb Strait (the entrance to the Red Sea), which covers 12% of the global crude oil trade and nearly 30% of the global container trade, with more than 90% of the seaborne plastic raw materials on the Asia-Europe route passing through the Red Sea channel.

Since October 2023, the continued turmoil in the Middle East has completely changed the operating logic of the global crude oil market from three dimensions, and directly transmitted to the plastics industry chain:

1. Continuous rigid tightening on the supply side: OPEC+ has extended its voluntary production cut plan of a total of 2.2 million barrels per day until the end of 2025, and Saudi Arabia has simultaneously extended its unilateral production cut of 1 million barrels per day. Global commercial crude oil inventories have been below the 5-year average for 8 consecutive months; the risk of supply disruption brought by the spillover of the Israel-Palestine conflict has further amplified the market’s expectation of tight supply.
2. Sharp rise in transportation costs and cycles: The continued attacks on the Red Sea shipping lane by Yemen’s Houthi armed forces have led global shipping companies to reroute around the Cape of Good Hope one after another. The transportation cycle of the Asia-Europe route has been lengthened by 2-3 weeks, and container freight rates have soared from $1,000 per TEU at the end of 2023 to more than $4,000 in mid-2024, with the seaborne costs of crude oil, naphtha and plastic raw materials also surging by 300% simultaneously.
3. Long-term high risk premium: The Iranian nuclear issue, frictions between the US and Iran, and the stalled normalization of Saudi-Israeli relations have brought long-term uncertainty to the crude oil supply in the Middle East. According to the Q1 2025 report of the International Energy Agency (IEA), the risk premium brought by Middle East geopolitical risks to Brent crude oil has long remained at $10-15 per barrel. The central price of crude oil has moved up from the $70-80 per barrel range in 2023 to the $85-100 per barrel range in 2024-2025, and once exceeded $112 per barrel in February 2025 during the escalation of the Red Sea crisis.

II. Full-Chain Transmission: Step-by-Step Impact and Differentiation of Oil Price Fluctuations on the Plastics Industry

The core production path of the plastics industry is crude oil → naphtha → basic olefins such as ethylene/propylene → synthetic resins such as PE/PP/ABS → end plastic products, and oil price fluctuations are transmitted step by step along this industrial chain. Data shows that the price linkage coefficient between naphtha and crude oil is as high as 0.95, the linkage coefficient between olefin monomers and naphtha is 0.85-0.9, while the linkage coefficient between end plastic products and raw materials is only 0.3-0.6. The further downstream, the lower the transmission efficiency, the heavier the pressure on enterprises, and the impact on different links presents significant differentiation characteristics.

(I) Upstream Refining and Chemical Link: Integrated Giants See Soaring Profits, Small and Medium-Sized Refineries Are Under Full Pressure

For global petrochemical giants with full-chain capacity of “crude oil extraction – integrated refining and chemical”, the rise in raw material costs brought by higher oil prices can be completely hedged by their own crude oil production capacity. At the same time, the price of petrochemical products rises simultaneously with oil prices, and the corporate profit margin has expanded significantly. The most representative one is SABIC, a subsidiary of Saudi Aramco. In 2024, the net profit of its petrochemical business increased by 42.7% year-on-year, and the global export share of core products such as PE and PP rose from 17.8% in 2023 to 22.9% in Q1 2025, making it the biggest beneficiary of this round of oil price hikes.

For small and medium-sized refineries without their own crude oil production capacity and completely relying on purchased naphtha, the rise in oil prices directly led to a sharp increase in production costs. At the same time, weak downstream demand cannot fully transmit the costs, resulting in a sharp drop in the operating rate of enterprises, and even losses and production shutdowns. In 2024, the average operating rate of small and medium-sized refineries in Europe fell from 75% in 2023 to 58%, and 8 sets of naphtha cracking units in Germany and the Netherlands were permanently shut down, with a total capacity of more than 3 million tons per year, accelerating the industry’s capacity clearance.

(II) Midstream Trade and Modified Plastics Link: Out-of-Control Price Fluctuations, Sharp Increase in Inventory Management Difficulty

The plastic raw material trade link is the “amplifier” of oil price fluctuations: when oil prices continue to rise, traders generally form an expectation of “buying on the upswing”, hoarding goods and refusing to sell, leading to tight supply in the spot market, and the price increase far exceeds that of crude oil; when oil prices correct, traders sell goods in a concentrated manner, leading to a sharp drop in spot prices and a significant depreciation of inventory. In the most severe month of the Red Sea crisis in December 2024, China’s PE spot price soared from 7,800 yuan/ton to 9,900 yuan/ton, an increase of 26.9%, far exceeding the 12.3% increase of Brent crude oil in the same period; after the oil price correction in February 2025, the PE price plummeted by 21.7% within one month, and the scale of inventory depreciation for China’s traders exceeded 20 billion yuan, making the industry-wide inventory management difficulty reach a historical peak.

Modified plastics enterprises in the midstream of the industrial chain are caught in the dilemma of “pressure from both ends”. Modified plastics provide customized raw materials for the automotive, home appliance and electronics industries, and orders from downstream customers are mostly long-term orders of 3-6 months, with product prices locked in advance, while the price of upstream raw materials fluctuates violently with oil prices, continuously squeezing the profit margin of enterprises. The Q1 2025 financial report of a leading listed modified plastics enterprise in China shows that affected by the rise in the price of raw materials such as PP and PA66, the company’s comprehensive gross profit margin fell from 12.8% in the same period of 2024 to 7.3%, and the net profit attributable to parent company fell by 41.2% year-on-year. Coincidentally, the Performance Materials division of Germany’s BASF, the world’s second largest automotive modified plastics supplier, reported in its 2024 financial report that affected by the cumulative 32% increase in the price of core raw materials such as PA6 and PC driven by oil prices, coupled with the locked long-term order prices of European automakers, the division’s full-year operating profit fell by 58.3% year-on-year, and the gross profit margin dropped from 18.2% in 2023 to 9.7%. It was forced to shut down 2 modified plastics production lines in Ludwigshafen, Germany, reducing local European capacity by 120,000 tons per year, and transferring capacity to production bases in Zhanjiang, China and Jubail, Saudi Arabia to get closer to raw material production areas and reduce the risk of cost fluctuations.

(III) Downstream Products Link: Failure of Cost Transmission, Frequent Extreme Market Phenomena

Downstream plastic products manufacturers are the least bargaining link in the entire industrial chain, especially small, medium and micro enterprises in a fully competitive market, which cannot fully transmit the rising raw material costs to end customers, and become the ultimate bearers of oil price hikes. Industry crises caused by the surge in raw material costs have occurred in different market segments around the world, and many cases have fully exposed the vulnerability of the petroleum-based industrial chain.

Core Case 1: Severe Shortage of Garbage Bags in South Korea — Industrial Crisis Under Raw Material Dependence

South Korea has one of the highest per capita plastic consumption rates in the world, reaching 132 kg in 2024. However, its local petrochemical capacity is seriously insufficient, with the import dependence of general-purpose plastic raw materials such as polyethylene (PE) and polypropylene (PP) exceeding 95%, of which 68% of PE imports come from Middle Eastern countries such as Saudi Arabia and the United Arab Emirates, and the raw material supply is completely bound to the Middle East situation.

Since 2024, the turmoil in the Middle East has pushed up oil prices, coupled with the extended shipping cycle and soaring freight costs caused by the Red Sea shipping crisis, the CIF price of PE imported into South Korea soared from $980 per ton at the end of 2023 to $1,290 per ton in June 2024, an increase of up to 31.6%, which directly broke through the cost line of garbage bag manufacturers. Unlike ordinary plastic products, the special garbage bags for domestic waste in South Korea implement a strict government unified pricing system: the specifications and terminal selling prices of garbage bags are uniformly approved by local governments, and manufacturers must supply to supermarkets and convenience stores at the government-set prices, and are not allowed to raise the ex-factory prices without permission.

The rigid rise on the cost side and the complete lock on the selling price side led to more than 60% of small and medium-sized garbage bag manufacturers in South Korea being forced to stop or reduce production in the second half of 2024. The shortage rate of garbage bags in core cities such as Seoul, Busan and Incheon continued to rise, and even exceeded 45% in some administrative districts of Seoul in early 2025, resulting in an extreme phenomenon of national shortage of garbage bags: citizens lined up in convenience stores to snap up limited supplies of garbage bags, the selling price of garbage bags on second-hand trading platforms doubled compared with the government-set price, and even an underground black market specializing in reselling garbage bags emerged. In the end, the Ministry of Environment of South Korea had to urgently introduce a special subsidy policy, giving raw material cost subsidies of 300,000 won per ton to garbage bag manufacturers, and relaxing the pricing adjustment cycle, which gradually alleviated the supply crisis.

Core Case 2: “Production Reduction to Maintain Prices” in Southeast Asia’s Agricultural Film Industry, With Chain Impact on Agricultural Production

Southeast Asia is the core production area of tropical agricultural products in the world, and agricultural plastic film (agricultural film) is a necessity for local agricultural production. The core raw material is linear low-density polyethylene (LLDPE). However, countries such as Thailand, Vietnam and Malaysia have no local ethylene production capacity, with 100% import dependence of LLDPE, of which 72% of imports come from the Middle East, and the raw material supply is deeply bound to the Middle East situation.

Since 2024, affected by the oil price hike driven by the Middle East situation and the extended shipping cycle caused by the Red Sea shipping crisis, the CIF price of LLDPE imported into Southeast Asia soared from $1,020 per ton at the end of 2023 to $1,350 per ton in May 2024, an increase of 32.4%. The local agricultural film manufacturers are mainly small, medium and micro enterprises, with downstream docking of scattered individual farmers, and the acceptance of terminal price increases is extremely low — a single price increase of more than 10% will lead to a sharp decline in demand. The surge on the cost side and the inability to transmit on the selling price side led to more than 40% of small and medium-sized agricultural film enterprises in Southeast Asia stopping production in the second half of 2024. The gap in the spot supply of agricultural film in Thailand and Vietnam once reached 38%, and manufacturers were forced to adopt a “production reduction to maintain prices” strategy, and even farmers prepaid deposits 3 months in advance to lock in supplies. The shortage of agricultural film directly pushed up the planting costs of local tropical crops such as durian, mango and rubber. In 2024, the planting cost of durian in Thailand rose by 18% year-on-year, and the terminal export price also rose by 22% simultaneously, forming a full-chain transmission from oil prices to plastics and then to agricultural products.

Core Case 3: The End of Price War in China’s Daily-Use Plastics Industry, With Rapid Increase in Industry Concentration

China is the world’s largest producer of daily-use plastics, with the output of plastic storage boxes, water cups, household products and other products accounting for more than 60% of the global total. The industry has long been in a state of low-price competition, with small, medium and micro enterprises accounting for more than 90% and extremely weak bargaining power. Since 2024, the prices of core raw materials such as PP and ABS have risen by a cumulative 27% driven by oil prices, but the selling prices of end products on e-commerce platforms have long been locked by the low-price strategy of “9.9 yuan with free shipping”, and small and medium-sized manufacturers are completely unable to transmit cost pressure.

According to data from the China Plastics Processing Industry Association, in 2024, the operating rate of sub-scale enterprises in China’s daily-use plastics sector fell from 65% in 2023 to 38%, and more than 32,000 related enterprises were cancelled or revoked throughout the year, an increase of 37.6% year-on-year. In sharp contrast, leading enterprises in the industry such as Chahua Household Products and Citylong Technology, relying on long-term supply agreements with upstream refining and chemical enterprises to lock in costs, and at the same time increasing premiums through product upgrading, achieved year-on-year revenue growth of 12.3% and 18.7% respectively in 2024, with continuously increasing market share. The industry has shifted from “low-price involution” to a high-quality development stage with increasing concentration.

This phenomenon is not unique, and other market segments around the world are facing similar impacts:

• Accelerated Shuffling in Europe’s Food Packaging Industry: Food packaging accounts for more than 40% of plastic consumption in Europe, with core raw materials being food-grade PE and PP. Since 2024, the spot price of food-grade PE in Europe has risen by a cumulative 28.2%, but the price increase of end products of terminal food giants such as Nestlé and Unilever is only 8%-10%, which cannot fully cover the rising costs. They can only force price cuts on downstream packaging suppliers, and at the same time require the thickness of packaging films to be reduced from 30 microns to 22 microns to reduce raw material consumption. According to data from the European Plastics Converters, the number of bankruptcies of small and medium-sized food packaging enterprises in Europe increased by 35.4% year-on-year in 2024, and the market share of the top 10 enterprises in the industry rose from 28% in 2023 to 37% in Q1 2025.
• Survival Dilemma in China’s Express Packaging Industry: China is the world’s largest consumer of express packaging, consuming more than 3 million tons of PE express bags every year. The industry is dominated by small, medium and micro enterprises with annual revenue of less than 5 million yuan, with extremely low market concentration and almost no bargaining power. In 2024, the price of PE raw materials rose by a cumulative 25.1%, but the purchase price of express companies can only be increased by 5%-8%, and a large number of small and medium-sized manufacturers have fallen into the dilemma of “the more they produce, the more they lose”. According to Qichacha data, more than 123,000 enterprises related to plastic products in China were cancelled or revoked in 2024, an increase of 21.7% year-on-year, of which more than 60% are low-value-added enterprises in packaging and daily-use products.

III. Regional Differentiation: Vastly Different Risk Resistance Capabilities of Different Markets

The impact of the current Middle East situation and oil price fluctuations is not evenly distributed across the global market. The industry performance presents a significant differentiation pattern due to different crude oil self-sufficiency capacity, industrial chain integrity, and policy buffer space in different regions.

(I) Middle East Local: Industry Winners Amid Geopolitical Turmoil

Petrochemical enterprises in Middle East oil-producing countries are the biggest beneficiaries of this crisis. With the world’s lowest crude oil extraction cost (only $3 per barrel in Saudi Arabia), the production cost of PE and PP of Middle East petrochemical enterprises is more than 30% lower than that of European enterprises and more than 15% lower than that of Chinese enterprises, with extremely strong global price competitiveness. In 2024-2025, Saudi SABIC and UAE ADNOC continued to expand their petrochemical capacity, with PE exports to China, Southeast Asia and Europe increasing by more than 15% year-on-year, continuously seizing market share from European, American, Japanese and Korean enterprises. At the same time, Middle Eastern countries are accelerating their extension to the downstream industrial chain, relying on industrial policies such as Saudi Arabia’s “Vision 2030”, building the world’s top integrated refining and chemical bases and supporting plastic product industrial parks in Saudi Arabia and the UAE, attracting global downstream processing enterprises to settle in, and building a complete industrial chain of “crude oil – refining and chemical – products”, with continuously increasing global industrial discourse power.

(II) Europe: Continuous Industrial Relocation Under Dual Shocks

Europe’s plastics industry is experiencing a second heavy blow after the Russia-Ukraine crisis: the Russia-Ukraine crisis led to a surge in natural gas prices in Europe and a sharp rise in naphtha cracking costs; the current turmoil in the Middle East has led to high and volatile crude oil prices, adding to the cost pressure on European petrochemical enterprises. At the same time, Europe’s strict carbon neutrality policies have further raised the production threshold for enterprises. Under dual pressure, chemical giants such as BASF, Dow Chemical and LyondellBasell have continued to reduce their local European capacity and transfer capacity to regions close to raw material production areas or consumer markets such as the Middle East, North America and China. According to data from PlasticsEurope, Europe’s plastics production fell by 8.7% year-on-year in 2024, the largest annual decline except for the 2020 pandemic, with the industry capacity utilization rate less than 60%, and the global competitiveness continuing to decline.

(III) China: Sufficient Buffers, Significant Structural Differentiation

China is the world’s largest producer and consumer of plastics, with plastics output accounting for more than 30% of the global total. Although its crude oil foreign dependence exceeds 70%, it has three core buffers, and its risk resistance is much stronger than that of the Japanese, Korean and European markets: first, the scale advantage of large-scale integrated refining and chemical capacity, with 40 million tons per year level refining units of private refining giants such as Hengli Petrochemical and Rongsheng Petrochemical, leading the world in cost control ability, which can effectively hedge oil price fluctuations; second, the substitution effect of the coal chemical industry, with China’s total coal-based PE and PP capacity exceeding 12 million tons per year, when Brent oil price is higher than $80 per barrel, coal-based olefins have significant cost advantages, which can effectively stabilize the rise in raw material prices; third, the most complete downstream industrial chain in the world, which can digest part of the cost pressure through product structure optimization. Even so, small, medium and micro plastic products enterprises in China’s low-value-added fields are still facing huge survival pressure. In 2024, the growth rate of China’s general-purpose plastics output was only 2.3%, while the growth rate of engineering plastics and specialty plastics output reached 12.5%, with significant structural differentiation characteristics of the industry.

(IV) Japan, South Korea and Southeast Asia: Core Hardest-Hit Areas Without Raw Material Support

Countries such as South Korea, Japan, Vietnam and Thailand have almost no local crude oil refining capacity, with 100% dependence on imported plastic raw materials and extremely high dependence on the Middle East for raw materials, making them the core hardest-hit areas of this round of oil price hikes. In addition to the South Korean garbage bag crisis and the Southeast Asian agricultural film crisis, the import price of PE in Japan rose by 29.1% in 2024, and daily chemical enterprises such as Kao and Lion were forced to raise product prices by 10%-15%, triggering large-scale consumer boycotts; in Southeast Asian manufacturing powers such as Vietnam and Thailand, the prices of end products are locked in advance by European and American brand owners, and the rising raw material costs cannot be transmitted downstream. In 2024, Vietnam’s plastic product exports fell by 6.3% year-on-year, and a large number of foundries fell into losses or even shut down.

IV. The Way Forward: Long-Term Transformation and Core Opportunities of the Plastics Industry

The high and volatile oil prices brought by the geopolitical turmoil in the Middle East are not short-term market fluctuations, but a long-term norm under the restructuring of the global energy pattern. This crisis is not only an extreme test of enterprises’ risk resistance, but also a catalyst for the structural transformation of the global plastics industry. The industry is shifting from scale expansion relying on cheap crude oil to a diversified, low-carbon and high-value-added development model, which contains three core opportunities.

(I) Non-Petroleum-Based Plastics Usher in a Window of Large-Scale Development

Sustained high oil prices have greatly narrowed the cost gap between petroleum-based plastics and bio-based plastics and recycled plastics, bringing historic opportunities for the development of non-petroleum-based plastics. In terms of bio-based plastics, products represented by PLA and PHA use biomass as raw materials and are completely independent of crude oil. When Brent oil price is higher than $90 per barrel, the cost performance advantage is significantly highlighted. In 2024, the global bio-based plastics production capacity increased by 32% year-on-year, and the penetration rate in the packaging and medical consumables fields rose from 4.2% in 2023 to 7.8% in Q1 2025.

In terms of recycled plastics, high and volatile oil prices have become the core catalyst for the large-scale development of the industry. The global food-grade rPE and rPP production capacity increased by 28% year-on-year in 2024. Giants such as Coca-Cola, PepsiCo and Nestlé have all promised to reach more than 50% recycled content in packaging by 2030. The characteristic that recycled plastics are not affected by oil price fluctuations has become the core choice for downstream enterprises to hedge geopolitical risks. The most representative one is Circular Chemistry, a leading North American recycled plastics enterprise, which is the world’s leading manufacturer of food-grade rPE and rPP, with core raw materials being post-consumer plastic recyclables, and the price has almost no linkage with the crude oil market. When Brent oil price exceeded $90 per barrel, the cost difference between recycled plastics and virgin materials narrowed from 500 yuan/ton in 2023 to 150 yuan/ton. Coupled with the mandatory requirements for recycled materials from European and American brands, the product orders saw explosive growth. In 2024, Circular Chemistry’s revenue increased by 117% year-on-year, and net profit increased by 242% year-on-year. It has signed long-term supply agreements of more than 5 years with Walmart and PepsiCo, and at the same time launched the expansion of the 300,000 tons per year chemical recycling project in Texas, USA, tripling its previous production capacity.

(II) Vertical Integration of the Industrial Chain and Diversification of the Supply Chain Have Become Core Trends

This crisis has made enterprises around the world deeply aware that a single source of raw materials and a fragile supply chain are vulnerable in the face of geopolitical risks. In the future, vertical integration of the industrial chain will become the mainstream development direction of the industry: large downstream products enterprises extend upstream, signing 3-5 year long-term supply agreements with refining and chemical enterprises to lock in raw material prices and stable supply; upstream refining and chemical enterprises extend downstream, establishing a direct supply model with end customers to reduce price fluctuations in the intermediate trade link. At the same time, supply chain diversification has become the core strategy of enterprises. Enterprises gradually expand raw material sources from Russia, Africa, South America and other regions to reduce their single dependence on the Middle East; in terms of logistics routes, more enterprises choose China-Europe Railway Express to replace Red Sea shipping. In 2024, the transportation volume of petrochemical raw materials by China-Europe Railway Express increased by 47% year-on-year, effectively avoiding geopolitical shipping risks.

(III) Upgrading and Transformation of Product Structure to High-Value-Added Fields

Low-value-added general-purpose plastic products have weak bargaining power and are most affected by oil price fluctuations; while high-value-added engineering plastics and specialty plastics, which are downstream used in new energy vehicles, wind power, photovoltaics, aerospace and other fields, have high technical barriers and strong bargaining power, and can easily transmit raw material cost pressures. This crisis has accelerated the upgrading of the industry’s product structure. In 2024, China’s engineering plastics output increased by 12.5% year-on-year, much higher than the 2.3% growth rate of general-purpose plastics; the global specialty engineering plastics market size increased by 18.7% year-on-year, and demand from fields such as lightweight new energy vehicles, photovoltaic packaging, and wind power blades has become the core engine of industry growth.

The era of scale expansion of the plastics industry driven by cheap crude oil has come to an end. The uncertainty of geopolitics and the policy constraints of carbon neutrality are reshaping the underlying logic of the global plastics industry. In the future, only those enterprises that can achieve diversified raw materials, stable supply chains, high-value-added products and low-carbon production can survive the cycle in this industry transformation and seize the historic opportunities brought by the restructuring of the global industrial chain. For the global industrial pattern, this crisis will also accelerate the in-depth reshuffling of the industry: the global discourse power of Middle East petrochemical enterprises will continue to rise, the industrial competitiveness of Europe will continue to weaken, and China will occupy a more core position in the new changes of the global plastics industry by virtue of its complete industrial chain system and continuous technological upgrading capabilities.