Pray for Asian naphtha consumers
Robin Wigglesworth
Published MAR 19 2026
The ominous headline comes from JPMorgan’s team of oil analysts, who have been churning out good stuff over the past few weeks.
The details of their latest report are as downbeat as the headline. Natasha Kaneva, Lyuba Savinova and Artem Fakhretdinov pick up where their last report left off, by exploring the economic damage that the oil market crisis is beginning to cause in Asia, and how it is likely to spread:
By mid-March, multiple sectors in Asia had shifted into a defensive footing as energy prices spiked and supplies tightened. The retreat in refined product flows is already visible: shipments from the region’s major exporters are down about 30% over the past 10 days versus the five‑month baseline, with preliminary data for the last week pointing to an even steeper 35% drop. The pullback is sharpest in jet fuel (down more than 40%), followed by gasoline (down more than 30%) and diesel (down more than 20%).
Diesel has emerged as the region’s immediate choke point, with surging prices slowing both travel and freight. Governments are responding with a mix of demand management and emergency measures. Bangladesh brought forward the Eid-al-Fitr holiday and allowed universities to close early to save fuel. The Philippines and Sri Lanka instituted four‑day workweeks to curb diesel use and stretch dwindling stocks. Pakistan closed schools and shifted universities online. Officials in Thailand and Vietnam have been urged to use stairs, work from home, and limit travel, while Myanmar introduced alternating driving days to reduce road fuel demand. In parallel, authorities are intervening directly into fuel markets to stabilize fuel prices.
As anyone who has looked at booking flights recently can attest to, the airline industry is particularly exposed. And if you’re flying anywhere in Asia you might be up the creek:
As jet fuel approaches $200/bbl, carriers are shifting from cost management to outright service withdrawal, with many routes rendered uneconomic. As of March 18, several Asian airlines, including Qantas, Air India, Cathay Pacific, and IndiGo, have introduced phased fuel surcharges. Long-haul Air India tickets from Asia to Europe or North America now carry a $125-200 surcharge per passenger, with an additional $4.30 on domestic flights — effectively pricing out many leisure travelers for the upcoming summer season. Scandinavian Airlines (SAS) and Air New Zealand were among the first carriers to cancel or reduce flights due to soaring jet fuel prices.
Nor is the damage just being done by soaring prices making certain flight routes or industrial businesses unprofitable. JPMorgan says that outright shortages are already beginning to bite, and in some cases forcing sizeable production cuts:
In many regions, demand isn’t being reduced by choice but by the physical absence of inputs. Asian and European steam crackers rely on naphtha and LPG from the Persian Gulf, and with those feedstocks constrained, shutdowns and curtailments are occurring immediately. Asia is the most exposed, sourcing more than 50% of its naphtha from the Middle East.
Japan offers a clear example. With over half of its naphtha imported — roughly two-thirds from the Middle East — petrochemical producers are trimming output: Mitsubishi Chemical and Mitsui Chemicals have reduced ethylene runs, while Sumitomo Chemical may delay restarting Keiyo Ethylene and expects reduced rates even after restart. South Korea is also seeing pressure build across the sector. YNCC — one of the region’s largest ethylene producers — has declared force majeure and is running its cracker at significantly reduced rates. Both Lotte Chemical and LG Chem have warned customers that they may follow, and the government has temporarily designated naphtha an “economic security item” to manage dwindling stocks. The strain extends across Greater China and Southeast Asia.
In China, Sinopec has cut March refinery runs by about 10% to conserve crude stocks. A Shell — CNOOC joint venture has shut its Huizhou ethylene cracker and told customers that polyethylene shipments are suspended indefinitely effective March 5, while Wanhua Chemical has declared force majeure for Middle Eastern customers amid severe LPG feedstock disruptions. In Indonesia, Chandra Asri is operating at reduced rates and has declared force majeure following a sudden halt in feedstock arrivals.
Meanwhile, in Taiwan, Formosa Plastics Group’s Taiwan Petrochemical declared force majeure on March 10 and indicated that, if shortages worsen, volumes will be allocated based on actual availability. India suspended shipments of LPG to commercial operators to prioritize supplies for households, leading to worries from hotels and restaurants that they may be forced to close.
So what does this mean for oil demand, and by extension economic growth?
Nothing good.
Oil demand is, on average, highly inelastic in the short run because most end uses have few immediate substitutes — factory boilers rely on fuel oil, aircraft require jet fuel, and most cars still run on gasoline. Our estimate of the short‑run price elasticity of global oil demand is −0.024, implying that a roughly 40% price increase above 12‑month highs is needed to reduce total consumption by 1%. The response, however, varies materially by product.
Naphtha is most sensitive because petrochemical plants can partially substitute ethane in cracking operations. Jet fuel is also relatively responsive, as airlines can cancel lightly loaded flights when fuel costs spike. By contrast, fuel oil is least elastic given its role in essential services like home heating, marine transport, and power generation.
Taken together, these elasticities imply that if Brent averages $100 in March, the price effect alone would trim global demand by about 1 mbd in April — before accounting for additional losses from grounded flights in the Middle East and outright physical shortages.
Unfortunately, Alphaville suspects that unless the Straits are reopened soon then whatever happens in Asia probably won’t stay in Asia. And even if peace somehow breaks out, this episode could have a long tail.
As the FT reported earlier today:
Iran’s most potent weapon has proved to be its ability to in effect close the Strait of Hormuz, through which about one-fifth of the world’s oil and gas normally passes.
While Iran had previously threatened to close the strait, the western official said, “they never knew [they could] until they tried it”.
“Now they know, and it’s pretty effective,” the official said. “The risk is they will keep holding the world hostage.”
Yay.
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