China Galaxy Securities (CGS) has released a research report indicating that recent escalations in Middle Eastern geopolitical tensions have triggered significant volatility in global energy and chemical markets. The regional military conflicts have driven up prices across key energy and chemical products. CGS recommends focusing on the following investment themes.
First, high-dividend oil and gas companies that stand to benefit from rising crude oil and natural gas prices. Second, potential profitability improvements in coal-to-olefins, coal-to-methanol, urea, and bromine production. Third, potential disruptions to Europe's natural gas-based chemical industry, which could enhance the global competitiveness of Chinese companies. CGS's primary views are outlined below.
**Strait of Hormuz Tensions Reignite, Geopolitical Factors Drive Crude Prices Higher** Iran's crude oil production reached 3.37 million barrels per day in 2025, accounting for 4.3% of global output. As a major global oil producer with significant influence over the Strait of Hormuz, any disruption is critical. Currently, Iran's oil production remains relatively normal. Bloomberg data shows Iran's oil production and exports in January 2026 were 3.30 million and 1.53 million barrels per day, respectively.
The Strait of Hormuz, situated between Oman and Iran, connects the Persian Gulf, the Gulf of Oman, and the Arabian Sea. According to EIA data, oil flow through the strait was 20.1 million barrels per day in Q1 2025, representing 26.6% of global seaborne oil trade and 19.7% of global oil consumption. Even a temporary blockage would cause severe supply delays and increase transportation costs, thereby pushing global energy prices higher.
CGS believes a prolonged blockade of the Strait of Hormuz is unlikely due to the diverse interests involved. Such an event would negatively impact Middle Eastern oil producers like Iran, Saudi Arabia, the UAE, and Iraq, while also creating significant supply pressures for major oil-importing nations such as China, India, South Korea, and Japan.
The current crude oil price of $80 per barrel already factors in some expectation of Middle Eastern supply disruption. Future price movements will depend on geopolitical developments. If US-Iran negotiations progress and the Strait of Hormuz reopens, Brent crude prices could gradually retreat to a range of $60-$70 per barrel amid expectations of a supply surplus. Conversely, a prolonged blockade could push Brent crude prices toward the $90-$100 per barrel range.
**QatarEnergy Production Halt; Supply Losses Boost Natural Gas Prices** Approximately 20% of global liquefied natural gas (LNG) shipments transit the Strait of Hormuz. Furthermore, on March 2, QatarEnergy announced it was halting LNG production following military attacks on its operational facilities in Ras Laffan Industrial City and Mesaieed Industrial City. QatarEnergy holds about a 20% share of the global LNG export market.
In the short term, the combination of the strait's potential closure and a major producer's shutdown creates a tangible supply loss in the LNG market. Additionally, European natural gas inventories are currently low, creating a need for restocking. Concurrently, China is in a phase of post-holiday production resumption, suggesting a seasonal strengthening of demand. Driven by these supply and demand factors, natural gas prices are expected to remain strong in the near term.
**Methanol Import Pressure May Ease; Prices Rise Amid Geopolitical Uncertainty** According to Longzhong Information, Iran's total methanol capacity is 17.39 million tons per year, accounting for 59.9% of total Middle Eastern capacity and 22.9% of international capacity (excluding China). In 2025, Iran produced 9.70 million tons of methanol, representing 48.9% of Middle Eastern output and 19.0% of international output (excluding China).
China's methanol imports in 2025 were 14.41 million tons, with an import dependency of 13.5%. Imports from the Middle East totaled 9.99 million tons, constituting 69.4% of China's total imports. SCI data indicates Iran has 11 methanol plants, with 6 currently operating normally. As of February 28, Iran's methanol shipments in February were 275,000 tons, down 157,000 tons month-on-month and 36.3% year-on-year. The planned restart of two idled plants with combined capacity of 3.3 million tons per year has been postponed. Meanwhile, Middle Eastern freight costs have risen significantly.
If Middle Eastern conflicts persist, methanol shipments from the region in March are likely to continue declining. Coupled with demand for restocking, methanol prices are expected to remain firm in the short term, though the extent of increases will depend on port operations at Assaluyeh and shipping conditions in the Strait of Hormuz.
**Increased Uncertainty Surrounding Iran's Urea Production and Exports; Potential for Higher Global Prices** Leveraging abundant natural gas resources, Iran is a major global producer and exporter of urea. According to SCI data, Iran's current urea capacity is nearly 9 million tons per year, with annual exports accounting for approximately 25% of the Middle Eastern market and 10%-15% globally, making it the world's third-largest urea exporter.
In mid-January 2026, due to shifts in US-Iran relations, many Iranian urea plants suspended operations, causing US barge urea prices to surge from an average of $362.5 per ton to $423.5 per ton. The current sudden change in Iran's situation increases uncertainty regarding the restart of urea plants and exports, potentially creating a temporary supply gap in the global market and driving international urea prices higher.
China possesses sufficient urea capacity, but its exports are subject to quota controls. If the trend of increasing export quotas seen in 2025 continues, higher volumes and prices could improve the profitability of urea producers.
**European Gas-Based Chemical Production Faces Uncertainty; Methionine, Vitamins, MDI/TDI Most Exposed** According to FuelsEurope, natural gas accounts for about 30% of the direct feedstock for the European chemical industry, with higher proportions in Northern and Western Europe (e.g., UK, Norway, Belgium, Netherlands). Following the Russia-Ukraine conflict, Russian pipeline gas supplies dropped sharply, making Qatari LNG a crucial source for Europe.
In methionine production, natural gas serves as both an energy source and a direct feedstock; other raw materials include methanol, sulfur, and propylene. The recent surge in natural gas futures could affect the supply of European methionine capacity, which represents nearly 20% of the global total. Furthermore, during the 2022 European energy crisis, vitamin and MDI/TDI production experienced reduced operating rates or disruptions in key intermediate supplies. If the current natural gas supply issue persists, a similar scenario could unfold.
**Rising Shipping Costs and Longer Transit Times Expected to Strengthen Bromine Prices** Utilizing rich bromine resources from the Dead Sea, Israel and Jordan are the world's two largest bromine producers. Longzhong Information data shows their global bromine capacity shares are 33% and 19%, respectively. China is the world's largest bromine consumer but relies heavily on imports, primarily from Israel and Jordan.
Customs data shows that in 2025, China imported 35,000 tons of bromine from Israel and 14,000 tons from Jordan, together accounting for about 64.7% of total imports. The escalation of Middle Eastern conflicts raises the possibility of temporary production cuts or shutdowns at some Israeli bromine plants, potentially creating a supply gap. Additionally, logistics costs for bromine exports from Israel and Jordan are expected to rise significantly, and shipping timelines face considerable uncertainty, likely leading to an increase in the price floor for bromine.
**Risk Warning:** Potential for intensified geopolitical conflicts; risk of sharp product price fluctuations; risk of supply chain disruption due to logistics interruptions.
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