Everbright Securities has released a research report suggesting that the recent easing of geopolitical tensions could lead to a recovery in the petrochemical and chemical sectors.

The report notes that on June 15th, the United States and Iran reached a peace agreement. According to Kpler estimates, if the implementation of the U.S.-Iran agreement proceeds without major disruptions, traffic through the Strait of Hormuz could recover to nearly 50% of pre-conflict levels within a month. However, lingering hazards to passage through the Strait and the long-term effects of the conflict are expected to keep oil prices at medium-to-high levels through 2026. The firm anticipates that oil prices will remain elevated in 2026, benefiting upstream enterprises.

During the period of conflict, the supply of products such as methanol, LPG, polyethylene, ethylene glycol, P-xylene (PX), and styrene was severely impacted by the closure of the Strait of Hormuz and shutdowns of petrochemical capacity in the Middle East. With the Strait reopening, the tight supply chain for petrochemical feedstocks from the Middle East is expected to ease, potentially alleviating cost pressures and operational challenges for downstream chemical companies.

Key Points from the Report

Event Overview

A peace agreement was reached between the U.S. and Iran on June 15th. A formal signing ceremony is scheduled for June 19th in Switzerland, to be followed by more detailed negotiations on nuclear issues. The Strait of Hormuz is expected to reopen, with the U.S. simultaneously lifting its maritime blockade on Iranian ports.

Sustained High Oil Prices and the Strategic Value of National Oil Companies

Given the persistent long-term impacts of the conflict, oil prices are projected to stay at medium-to-high levels in 2026. Kpler's analysis suggests Strait traffic could recover to nearly half its pre-war level within a month if the agreement is smoothly implemented. However, several factors support sustained higher prices.

First, significant differences remain between the U.S. and Iran regarding the interpretation of the peace agreement's terms, particularly concerning transit fees for the Strait of Hormuz. Additionally, the threat of naval mines in the shipping lanes continues to pose a substantial safety risk.

Second, oil and gas infrastructure in the Middle East has been damaged, and restoring production from shut-in oil fields will be challenging. Consequently, global crude oil supply is expected to remain significantly impacted in 2026. The IEA forecasts that, assuming a gradual recovery in Strait traffic from June, global oil supply will average 3.9 million barrels per day lower in 2026.

Third, the crude oil market faces low inventory risks. According to EIA projections, if the Strait of Hormuz opens in Q3 2026 and Gulf state production cannot rebound quickly, OECD inventory days could fall to 50 by the end of 2026, the lowest level since 2003. Low inventories severely weaken the market's buffer capacity, increasing the likelihood of medium-to-high price volatility.

Opportunities for Oilfield Services and Engineering Firms

Against the backdrop of energy security and post-conflict reconstruction needs, oilfield service and engineering companies stand to benefit. China's national oil companies are intensifying efforts to increase reserves and production to enhance energy security, which should benefit their subsidiaries.

In 2025, China's dependence on imported crude oil was 73%, and its dependence on imported natural gas was 40%. External shocks since 2022 have underscored the importance of securing a controllable domestic energy supply. Investment in domestic oil and gas exploration and development is expected to grow steadily during the 15th Five-Year Plan period.

The national oil companies are projected to maintain high capital expenditures, with a combined planned upstream capital expenditure increase of 4% year-on-year for 2026. Their plans for growth in oil and gas equivalent output in 2026 are 0.6%, 0.2%, and 1.6%, respectively. The intensified focus on increasing reserves and production in offshore fields creates a solid market foundation for offshore oilfield services, from which the service subsidiaries of these national oil companies are well-positioned to benefit.

Improved Fundamentals for the Broader Chemical Industry

The repair of Middle Eastern supply chains is expected to ease the tight supply of chemical feedstocks like naphtha, methanol, and LPG. The Middle East has become a key supplier of petrochemical feedstocks due to its low-cost advantage. In 2024, the region's basic petrochemical capacity reached 85.6 million tons, accounting for nearly 11% of global capacity.

During the conflict, the supply of products including methanol, LPG, polyethylene, ethylene glycol, PX, and styrene was severely affected. The reopening of the Strait of Hormuz should alleviate the supply chain tightness for these raw materials from the Middle East, helping to moderate cost and operational pressures for downstream chemical manufacturers.

Potential Recovery in Profitability for Phosphorus Chemical Sector

Geopolitical disruptions led to a contraction in imports and a sharp rise in sulphur prices, putting pressure on the profitability of phosphate fertilizer production. According to Chinese customs data, in 2025, approximately 5.39 million tons of sulphur were imported from eight Persian Gulf coastal nations, accounting for about 56% of total sulphur imports that year. From January to April 2026, imports from these countries fell to about 790,000 tons, a year-on-year decrease of approximately 59%.

This supply contraction drove sulphur prices significantly higher. Spot sulphur prices rose from about 3,660 yuan per ton at the beginning of the year to approximately 9,870 yuan per ton by June 12th, an increase of roughly 170%. This cost pressure has been transmitted downstream. Data shows that the gross profit for monoammonium phosphate (MAP) fell from about -490 yuan per ton at the start of 2026 to approximately -3,360 yuan per ton by June 12th, while the gross profit for diammonium phosphate (DAP) dropped from about -680 yuan per ton to around -3,870 yuan per ton over the same period, indicating a significant widening of losses.

Associated Risks

The report concludes by highlighting several risks, including geopolitical uncertainties, the potential for significant volatility in crude oil prices, and the possibility that downstream demand recovery may fall short of expectations.