EBM Newsdesk Analysis
May 14, 2026 — Markus Steilemann, CEO of Covestro and president of the European Chemical Industry Council (Cefic), has warned that the Iran war’s compounding effect on naphtha and ethylene feedstock prices has pushed Europe’s chemicals industry beyond what the 2022 Russian gas crisis nearly delivered, according to the Financial Times. Cefic’s latest survey indicates BASF, INEOS, Covestro, Lanxess and Evonik are now running European plants at capacity utilisation levels of 62-68 percent — well below the 80 percent threshold below which heavy chemicals production becomes structurally unprofitable. BASF’s Ludwigshafen complex, the largest integrated chemicals site in the world, has been cutting permanent capacity since 2023; the Iran feedstock shock has now pushed Wacker Chemie and Air Liquide into similar postures.
For European business the implication is not cyclical. The chemicals industry is the upstream supplier to every European manufacturer of plastics, fertilizer, paint, adhesives, pharmaceutical intermediates, semiconductors and battery materials. If BASF cuts, every European industrial sector cuts twelve months later. The Iran war has not added a new problem to the chemicals industry; it has finished a problem the 2022 Ukraine war began.
What’s actually broken
Naphtha — a refined oil derivative — is the primary feedstock for European steam cracking, the process that produces ethylene and propylene, the molecular building blocks of most plastics. European naphtha prices have risen 64 percent since the Iran ceasefire collapsed last month and the Strait of Hormuz closed to Western tanker traffic. Ethylene contract prices in north-west Europe have climbed in tandem. Polyethylene and polypropylene producers cannot pass the cost through fast enough to maintain margins.
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SubscribeUS chemicals competitors using ethane (cheap shale-gas-derived) face none of this pressure. Chinese chemicals competitors using subsidised domestic naphtha and coal-derived olefins also face none of it. The cost gap between European and global chemicals has never been wider.
The compounding from 2022
The 2022 Russian gas cutoff was a survivable shock because it was framed as a temporary emergency. Brussels deployed energy subsidies, German taxpayers absorbed €200 billion of price-cap costs, and BASF, Covestro and BASF cut production at the margin while waiting for prices to normalise. They did not fully normalise. European industrial gas prices remain roughly 3-4 times the US level and 2 times the Chinese level.
What the chemicals industry was holding for was a normalisation cycle that the Iran war has now structurally cancelled. The 2022 cost base was something European chemicals could absorb if it was temporary. The 2026 cost base — gas at 3-4x US plus oil-derived feedstock at +64 percent — is structural. Companies that had been hibernating capacity through the cycle are now permanently shutting it.
The export competitiveness collapse
The numbers are stark. European chemical exports to global markets have fallen from 23 percent of world trade in 2018 to 14 percent in Q1 2026. China’s share has risen from 12 percent to 27 percent over the same period. US share has held steady. The European chemicals industry is not losing market share to a cyclical disruption; it is being replaced.
Volkswagen, Renault and Stellantis already feel this through their supplier networks. So does every European pharmaceutical company sourcing intermediates from Chinese rather than German plants. The BYD acquisition discussions with Stellantis are not just an EV story — they are a downstream demand story for the European chemicals plants that supplied those factories.
What collapses next
Three concrete consequences over the next 24 months. First, BASF will continue to convert Ludwigshafen capacity into US Gulf Coast and Chinese Zhanjiang capacity. The corporate centre will remain in Germany; the production will not. Second, the smaller specialty chemicals companies — Lanxess, Wacker, Evonik — face acquisition by Chinese strategic buyers under the same logic BYD is applying to Stellantis. Third, European fertilizer producers — Yara, BASF Agricultural Solutions — will lose enough capacity that European farmers become structurally dependent on imported fertilizer, with attendant food-price implications already feeding into European inflation prints.
This is the chain. Iran breaks naphtha. Naphtha breaks chemicals. Chemicals break manufacturing. Manufacturing breaks employment. Employment breaks politics. And Brussels’ consensus model struggles to respond at any of those speeds.
The chemicals industry was the last visible test of whether European energy-intensive manufacturing could survive without structural intervention. It has now failed that test in real time.
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