US-Israel-Iran Conflict Day 12: Which Domestic Energy Sectors Are Raising Prices? Who Is Under Pressure?

Interface News Reporter | Jiang Xi

Intern Reporter at Interface News | Xiao Yifan

The conflict between the U.S. and Iran continues. Iran is a major global oil exporter and a supplier of chemicals like methanol, while also controlling the crucial Strait of Hormuz, a key global energy shipping route. The current instability is ongoing and is impacting 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 price chart. Source: Investing.com screenshot

In the past two 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 during 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 Controllable

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 to prepare for 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 oil will face more significant disruptions.

Consumers of refined oil products in China have also felt the direct impact of rising oil prices. On March 9, domestic refined oil prices increased for the fourth consecutive time, with a small car with a 50-liter tank paying about 27.5 yuan more to fill up—a four-year high. Several crude oil analysts told Interface News that the next price adjustment is likely to see further increases.

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

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

Under multiple international and domestic factors, domestic LNG prices have 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 at one point. But as international market sentiment cooled and downstream acceptance of high prices declined, prices retreated, with the benchmark price closing at 4,426 yuan/ton on March 11, a 10.15% drop in a single day. Overall, the LNG market currently exhibits “strong expectations but weak reality.”

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

Chemical Market: Facing Cost Transmission Pressure

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 profit margins 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/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% coming from Iran. The blockade of the Strait of Hormuz will further increase costs for related companies.

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

Specifically, for major chemical products like methanol and sulfur, which depend heavily on Middle Eastern and Iranian sources—over 50% of their supply—futures prices have been rising since early March. By the night of March 10, methanol’s main contract had increased by 16.45% since March 2, polypropylene by over 18%, and propylene by over 20%.

However, as market sentiment cooled, prices of these products generally declined on March 10. Methanol’s main contract fell 7.58%, polypropylene dropped 2.34%, and propylene decreased 2.42%.

Ma Yingjun, senior analyst at Zhuochuang Information on chemicals, noted that products like methanol, ethylene glycol, phenol, and sulfur—over 50% dependent on Middle Eastern sources—led the price increases, with some rising 40-50%, mainly driven by supply disruption expectations. Some products like phenol and BPA face “real shortages” due to supply cuts, keeping prices firm. Others are only influenced by cost-side sentiment, with prices at risk of falling back with crude oil.

Xue Fei, methanol analyst at Zhuochuang, told Interface News that although methanol prices have retreated from recent highs, the supply-demand pattern remains unchanged.

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

A staff member at Oriental Shenghong told Interface News that this round of market conditions benefits the company’s downstream product sales, as products like benzene, sulfur, styrene, and phenol have all seen price increases internationally.

Fertilizer Market: Limited Impact

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

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

For example, in urea fertilizer, 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.

Longzhong Information senior analyst Shi Xuxu noted that the current cost-driven increase in compound fertilizer prices is evident. After the holiday, amid 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, nitrogen, and phosphorus have all seen some increases, with rigid cost support directly transmitting to fertilizer production, squeezing profit margins and boosting manufacturers’ willingness to raise prices.

“Compared to international prices, the domestic market is relatively controllable under supply and price stabilization policies, providing some support for domestic food security,” Shi Xuxu said.

“Domestic nitrogen fertilizer supply exceeds demand, and to ensure stable spring farming, factory prices cannot exceed the guiding prices,” Liu Qiang, nitrogen fertilizer analyst at Zhuochuang, told Interface News. He added that this crisis has limited impact on China’s nitrogen fertilizer market.

A staff member at Hualu Hengsheng (600426.SH) also told Interface News that due to government controls on fertilizer prices, nitrogen fertilizer prices have not shown significant fluctuations.

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 a total of 4.96%.

Nonferrous Metals Market: Divergent Impacts

The current geopolitical conflict has had mixed 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 forecasts suggesting gold prices could surge to $5,400–6,800 per ounce by 2026–2028.

Many institutions see aluminum as one of the biggest winners. 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 aluminum production cuts or shutdowns in the region. Given the low global aluminum inventories, high overseas premiums, and tight supply-demand balance, the crisis will likely intensify market tensions.

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

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

Huatai Securities believes that copper prices are temporarily suppressed by concerns over stagflation. In the medium term, driven by stockpiling, supply disruptions, and increased demand from power investments, outlook remains optimistic.

Since March, Shanghai copper futures have generally declined, with a cumulative drop of over 1%.

Additionally, due to cautious expectations about Middle Eastern energy storage demand and potential price declines, funds have sought safe-haven assets, leading to a drop in lithium carbonate futures.

Since March 2, domestic lithium carbonate main contracts have trended downward. On March 11, lithium carbonate’s continuous main contract fell 5% intra-day, closing at 155,200 yuan/ton.