Japan Naphtha Supply Shortage Triggered by Strait of Hormuz Disruption - March 2026

Japan is facing a severe naphtha supply crisis following the effective closure of the Strait of Hormuz in the wake of US-Israeli military strikes on Iran launched on February 28, 2026. Naphtha, a light petroleum product obtained during crude oil refining, serves as the primary feedstock for Japan's petrochemical industry. It is processed into ethylene and propylene, the building blocks of plastics, synthetic fibers, construction materials, food packaging, automotive components and countless everyday consumer goods.

Japan imports roughly 60% of its naphtha from overseas, with more than 70% of those imports originating from the Middle East, according to the Japan Petrochemical Industry Association (JPCA). This overwhelming dependence on a single maritime corridor makes the country exceptionally vulnerable to any disruption in the Strait of Hormuz, through which approximately 20% of all globally traded oil flows.

Since the onset of hostilities, naphtha prices have surged by approximately 66%, with spot prices jumping from around $590 per ton in late February to over $715 per ton by early March 2026. The Platts CFR Japan naphtha benchmark recorded a single-session increase of nearly $79 per ton. This price shock has placed enormous cost pressure on Japanese petrochemical producers who were already struggling with low utilization rates due to overcapacity driven by rising Chinese exports.

As of March 17, 2026, six of Japan's twelve domestic ethylene production facilities have already reduced output. Mitsubishi Chemical Corp. began cutting ethylene production at its Kamisu plant in Ibaraki Prefecture on March 6. Mitsubishi Chemical and Asahi Kasei Corp. jointly reduced operations at their Kurashiki facility in Okayama Prefecture. Mitsui Chemicals Inc. scaled back production at its two plants in Ichihara (Chiba Prefecture) and Takaishi (Osaka Prefecture). Idemitsu Kosan Co. announced on March 16 that it had lowered the operational rate at its ethylene plants in Ichihara (Chiba Prefecture) and Shunan (Yamaguchi Prefecture).

The downstream effects are already becoming visible. Shin-Etsu Chemical Co., Japan's largest polyvinyl chloride (PVC) producer, announced it had been forced to reduce PVC output at its Kashima plant in Ibaraki Prefecture after Mitsubishi Chemical began restricting ethylene deliveries. Shin-Etsu also declared it would raise domestic PVC prices to offset surging ethylene costs. PVC is widely used in water pipes, window frames, electrical cable insulation and construction materials, meaning the price increase will ripple through the building and infrastructure sectors.

Japan's strategic reserves offer limited protection in this scenario. While the country holds approximately 250 days of crude oil reserves, its naphtha stockpiles cover only about 20 days of consumption, according to Citigroup analyst Yuta Nishiyama. Even if those reserves were released, most of the naphtha derived from refining crude oil would likely be directed toward gasoline production rather than petrochemical feedstock, providing little relief for the plastics and chemicals industry.

Additionally, increasing naphtha output from stored crude oil is not straightforward. The refining process simultaneously generates kerosene and diesel, and limited storage capacity for these co-products makes it difficult to boost naphtha production in isolation.

The JPCA stated on March 17 that it does not see an immediate risk of supply disruptions, citing existing domestic inventories. However, the association acknowledged it is monitoring the Middle East situation with extreme concern and is actively seeking alternative naphtha procurement channels outside the Persian Gulf region.

The broader economic impact is significant. Shares of Hiroshima-based food container manufacturer FP Corp. have dropped approximately 15% since the conflict began, reflecting investor concerns about the cost of petroleum-derived packaging materials. Japan's Topix index has declined by around 8% over the same period, with MSCI data showing the country experienced drawdowns in the range of 8-10%.

Gasoline prices in Tokyo have climbed past 200 yen per liter, and some fuel stations have begun warning customers about potential delivery difficulties. Small businesses such as food service operators are already raising prices for the second time in less than a year to cope with rising costs.

The crisis extends beyond Japan. South Korea, which imports more than 60% of its naphtha from overseas with the vast majority coming from the Middle East, faces similar vulnerabilities. Korean naphtha inventories are estimated at roughly two weeks of supply. Lotte Chemical has already reduced utilization rates at its Daesan plant. In Singapore, petrochemical producer PCS issued a force majeure notice to all customers due to supply chain disruptions.

Industry analysts warn that many Japanese ethylene plants were already operating below full capacity before the conflict, leaving very little room for further production cuts. If the situation persists, some facilities may be forced to shut down entirely, stranding downstream customers who depend on a steady supply of basic petrochemical materials.

The United States, by contrast, is far less exposed to this crisis because much of its petrochemical industry relies on ethane derived from domestic shale gas rather than imported naphtha. This structural advantage could allow US-based producers to gain market share in Asia if the disruption continues.

Prime Minister Shigeru Ishiba has announced measures including the release of strategic petroleum reserves and the resumption of gasoline subsidies. However, the government has not yet presented specific countermeasures targeting the naphtha shortage and its impact on manufacturing supply chains.

Market participants and analysts stress that the full consequences of this naphtha supply disruption have not yet been priced into equity markets or industrial supply contracts. The situation has drawn comparisons to the early stages of the Covid-19 pandemic, where initial complacency gave way to widespread supply chain breakdowns once the scale of the problem became clear.