This story was first featured in the Aftermath newsletter, a series from David Dayen exploring the economic consequences of the war in Iran. To have these stories delivered to your in-box as soon as they are published, sign up for the newsletter here.
Hello and welcome to Aftermath, a series about the consequences of a catastrophically mistaken war of choice. On a semi-regular basis, we will look at how the closure of the vital Strait of Hormuz is playing out: key sectors affected by price spikes and shortages, impacts on various regions of the world as well as the long, intermediated global supply chains, and what innovations—both good and bad—may come out of the shock.
It may seem strange to focus on consequences while the war is still occurring, but the truth is that the die has already been cast when the Strait of Hormuz became a choke point rather than a natural waterway. This will have deep implications on economic security, technology, energy, and geopolitics, which we can now begin to chronicle, regardless of the ultimate outcome of the fighting between the U.S., Israel, and Iran.
In today’s edition: the latest on the blockade (and double-blockade) of the strait, the impact on the plastics industry, and China’s early bid for self-preservation that is sure to damage global industrial production.
OK, let’s get started!
Are We Still at War?
Yes. JD Vance wrapped up a weekend of Ls by presiding over a breakdown of talks in Pakistan aimed at extending the cease-fire put in place last week. The U.S. and Iran don’t agree on basic terms, like whether Israel’s pounding of Lebanon is included in the cease-fire. So this was destined to fail.
In the, er, aftermath, President Trump imposed a blockade on the Strait of Hormuz, just to the east of the Iranian blockade of the Strait of Hormuz. The first thing to say here is that a naval blockade is an act of war imposed in the middle of a cease-fire. The second thing is that the crisis in the strait is about oil, gas, and other goods not moving through the shipping lane, and blocking the shipping lane further doesn’t seem like a good solution for that! (Hilariously, Trump used social media to tout overinflated numbers of ships passing through the strait on Sunday; you know what will put a stop to that? A blockade!) The third thing is that Iran has a shoreline on the Caspian Sea which goes directly to Russia, so the blockade isn’t all that blockade-y.
But the most important thing to say is that Iran has prepared well for this possibility. As Drop Site and TankerTrackers have reported, Iran positioned 23 million barrels of oil in the Gulf of Oman, to the east of the U.S. blockade, that it can move out to ship around the world. As tankers go off to ship oil, mostly to China, others are rotated in. Other ships are scattered all over the world; maritime intelligence firm Windward puts the amount of Iranian oil currently in floating storage at a whopping 174 million barrels. So this blockade will accomplish nothing toward its primary objective to block Iran from benefiting financially from the sale of its oil resources, while continuing the broader supply shock that has roiled the world.
That’s what you get when you have a stable genius running the show. —David Dayen
One Word: Plastics
If oil and gas supplies are disrupted by the closure of the strait, that affects something that is all over your house and the environment around you, something you use hundreds of times a day without even thinking about it: plastics.
Plastics are made out of a soup of chemicals—ethylene, ethane, naphtha, and many more—derived almost entirely from oil and gas. These are by-products that the industry worked hard to monetize, and now it’s become less of a side hustle and more of the main event. Plastics are a $760 billion industry, and the modern world can’t really function the same way without them, even if it should.
Beth Gardiner, an environmental reporter formerly with the Associated Press whose new book is called Plastic Inc.: The Secret History and Shocking Future of Big Oil’s Biggest Bet, explained in an interview that the oil and gas industry sees plastics as an escape hatch for the inevitable demands to reduce fossil fuel usage due to climate risk. The ubiquity of plastics—which comprise half of the Boeing 787 Dreamliner and also the five trillion shopping bags produced last year—serves as a protective shield around continued drilling, in other words. But it also means that another critical good is at the mercy of global supply chains. “This whole situation of the impacts of war is a very powerful reminder that plastics are a fossil fuel product, and that the supply chains are just as vulnerable, if not more so, as oil and gas,” Gardiner said.
We’re seeing that play out now. Petrochemical prices are spiking to four-year highs as the key ingredients, known as feedstocks, cannot get out of the Persian Gulf. Roughly $20 billion to $25 billion worth of petrochemical products moves through the strait annually, and about 40 percent of exports of polyethylene, used mostly in packaging and containers, came from the Middle East last year. Polyethylene prices are up 37 percent since February, and polypropylene prices are up 38 percent.
The biggest beneficiary of all this may be U.S. fracking companies. Most Middle Eastern feedstocks supply Asia and Europe. But when fracking took off in the U.S., it turned a moribund domestic petrochemical industry around. Ethane, the main feedstock produced in fracking, was originally treated as a waste product and flared off. But eventually, frackers figured out it could be used to make plastics. “You can make ethane into ethylene and then polyethylene,” Gardiner said. “So the petrochemical industry started pouring over $200 billion to turn fracked ingredients into petrochemicals.”
A lot of U.S. plastic gets exported, including to China for packaging. And none of that goes through the strait. Ethane is also shipped to Europe and China, which is the world’s top plastic producer along with being the top plastic importer. Ironically, the U.S. market was overbuilt until the Iran war, but now that glut is being drawn down, with domestic producers minting money. Mothballed facilities in Cancer Alley around the Gulf Coast and elsewhere that refine ethane into ethylene, known as “crackers,” are now ramping up to full production. “It’s great for Dow or ExxonMobil,” Gardiner said.
Obviously, higher prices will be passed on to consumers, a process that’s already happening for producers that are heavy plastic users. Some of that will be marginal. Those five trillion plastic bags made last year only have a total value of $7 billion, which means the bags cost just a fraction of a penny. The cheap nature of plastic explains its ubiquity (from two million tons per year in 1950 to 500 million tons today) and why we’ve tolerated a culture of disposability.
The bigger potential problem, even with the U.S. boost, is shortages. “Even if the strait were to fully reopen now, it will take a really long time for all these supply chains to untangle,” Gardiner said, involving numerous chemicals and specialized products. Gardiner added that other petrochemicals, like those used in fertilizer, may take priority over plastics.
Some countries are securing their supplies; South Korea just imposed a five-month ban on exports of naphtha, which is used in a host of industrial processes, including plastics production for trash bags and vinyl. (Panic buying of trash bags is already being seen in South Korea.)
The likely reduction in plastics produced may be a moment to rethink reliance on petroleum-based products, particularly those that are disposable. This has become a business model based on how cheap plastics are to produce, using the waste product of something pulled out of the ground anyway. The Hormuz crisis adds a cost, after decades of the industry keeping the political system at bay. “The model of disposability is very profitable for the industry, for people who make plastic,” Gardiner said. “Media coverage of plastic focuses so much on where plastic ends up, and not where it comes from. This is a powerful reminder that plastics are really fossil fuels in another form, which would suggest using less of them.” —David Dayen
Acid Drought
China will halt exports of sulfuric acid starting next month, a decision with the potential to upend a multibillion-dollar global industry and imperil the planet’s food supply. Sulfuric acid is a crucial component for fertilizer—60 percent of the global demand goes toward it—and China is the top exporter. The nation wants to conserve its supply for domestic use during the height of planting season as Trump’s war on Iran chokes off imports from the Middle East, the second-biggest exporter. China’s ban will cover the sulfuric acid by-product that is derived from copper and zinc smelting.
Sulfuric acid is a corrosive chemical compound not found in nature and is particularly important in the production of phosphate-based fertilizers. The chemical helps convert raw phosphate rock into a form that plants can absorb. China’s impending export restrictions are sure to send the price of these fertilizers skyward, which will hit farmers all over the world.
U.S. farmers have already been feeling the pains of higher fertilizer prices due to the Iran war and the blockade of the Strait of Hormuz. So far, the harm has been concentrated among farmers, who have had to use less fertilizer than usual or take out lines of credit to buy what they need. But as the planting season continues and lower yields result, the cost could be shifted onto consumers both in the U.S. and abroad. The U.N. World Food Program is particularly concerned about famine-struck areas, and estimates that if the war continues and oil prices remain high, food insecurity could reach a record 363 million people.
Before the war, China and the Middle East were the main producers of sulfuric acid, producing well over half of the world’s supply. About 33 percent came from China and 24 percent came from the Middle East. Production of the compound is a $14 billion market, according to consultant Grand View Research, and had been expected to increase to more than $21 billion by 2033, juiced not just by fertilizer but other industrial uses. Electric-vehicle batteries, for example, require mining and smelting, which requires sulfuric acid. It’s also a key component in mineral processing, oil refining, semiconductor manufacturing (which is already under strain), and wastewater treatment.
Sulfuric acid cost about $500 per ton before the war, and rose between 10 percent and 15 percent as of last month. Now, with the additional loss of the Chinese market, there is even less supply available and prices will skyrocket again.
The industry magazine Acuity first reported on the Chinese ban last week and said it could last through the year, a major reversal from what the U.S. has long considered a steady and reliable market. Buyers of sulfuric acid learned of the news when their Chinese suppliers told them, Bloomberg reported.
According to consultancy The Oregon Group, Indonesia is the most at risk from a dwindling supply of sulfuric acid. That nation needs it for nickel production, of which it makes more than 60 percent of the entire world’s supply.
The Environmental Protection Agency said in 2022 that while the compound is highly critical for global manufacturing and has sometimes undergone price fluctuations, its overall supply risk was ultimately “low.” But after Iran closed the Strait of Hormuz, S&P Global Energy cautioned that even “a 2-3 month effective blockade would likely become severe supply shock.” That is about to get worse. —Whitney Curry Wimbish and Emma Janssen
If you have tips or ideas for future stories, let us know! You can email us at aftermath@prospect.org.
