The Strait of Hormuz’s effective closure will ease during April, though some disruption is likely to persist for months, impacting downstream sectors across the GCC, according to S&P Global Ratings.

The effect on rated chemical players in the Middle East will depend on the war’s duration and how long the Strait of Hormuz remains disrupted, the rating agency said.

Higher spot prices for fertilisers and petrochemicals caused by ongoing disruption are unlikely to fully offset rapidly diminishing flows and inventories for exporters, which could translate into earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin erosion and higher leverage.

S&P expects that disruptions in the Strait could affect a significant share of global exports, including 47 percent of sulphur, 35 percent of urea, 26 percent of diammonium phosphate (DAP), and 24 percent of ammonia. The region also accounts for around a quarter of global polyethylene and polypropylene exports. 

The actual and expected duration of the Strait of Hormuz’s effective closure will determine the effect on global oil, gas, and chemicals markets in terms of flows, potential disruptions, and prices, the report said.

S&P expects companies that are highly reliant on export routes through the Strait of Hormuz to feel the effects most acutely.

“We think that local and subsequently global fertiliser and petrochemical supply could decline, leading to rapidly diminishing export volumes from plants in the Arabian Gulf,” the report said

The impact on rated GCC-based chemical companies such as Fertiglobe, Saudi Basic Industries Corporation (SABIC), Industries Qatar, Equate Petrochemical Company and Borouge Group International is expected to be moderately negative, despite most having sufficient financial buffers to absorb operational disruptions for a short period of time. 

Rating headroom could narrow should the situation persist or deteriorate, including from physical asset damage, caused by the war, affecting production, the report added.

(Editing by Anoop Menon) (anoop.menon@lseg.com)

Subscribe to our Projects' PULSE newsletter that brings you trustworthy news, updates and insights on project activities, developments, and partnerships across sectors in the Middle East and Africa.