1. the Core Context of Geopolitical Risks in the Middle East and Global Energy Linkages

as the "heartland" of global energy supply, any change in the geopolitical situation in the Middle East will trigger a chain reaction of the world economy. At the end of February 2026, the United States and Israel jointly took military action against Iran, and Iran immediately announced a substantial blockade of the Strait of Hormuz. This incident has become a landmark node in this round of geopolitical risk escalation.

The Strait of Hormuz is known as the "throat" of global oil transportation, and is responsible for about 20% of the global oil supply and 22% of the liquefied natural gas export transportation task. Data show that the average daily flow of crude oil transported through the strait will reach 17.2 million barrels in 2025. Once the channel is blocked, the global energy supply chain will face structural shocks. From the perspective of energy pattern, oil production in the Middle East accounts for 48% of the world's total output, of which OPEC Middle East member countries account for 31% of the world's output. With the coordinated supply of African oil producing countries, the decisive role of the region in global energy security is self-evident.

The uncertainty of oil supply caused by geopolitical conflicts was quickly transmitted to the international crude oil market. Before the outbreak of the conflict, the price of Brent crude oil remained at $72.87/barrel. After the situation escalated, the market expected the oil price to climb to the range of $80-100/barrel. This price fluctuation has a direct impact on the cost base of the petrochemical industry chain, and toluene, as an important aromatic product downstream of crude oil, is naturally involved in the market turmoil.

Immediate Reaction of Toluene Market under 2. Geopolitical Risk Transmission

strong pull on (I) cost end

the raw material of toluene production is mainly naphtha, and the linkage coefficient between naphtha price and international crude oil price is as high as 0.92. The escalation of geopolitical risks in the Middle East has pushed up international crude oil prices, directly driving up naphtha prices, making toluene production costs significantly higher. On March 1, 2026, Shandong refined toluene quotation from the end of February 5400 yuan/ton of rapid increase, downstream operators in anticipation of rising costs to actively enter the market, toluene transaction premium to 5500 yuan/ton, and then the refinery listing price further increased to 5550-5600 yuan/ton, a one-day increase of 2.8.

From the transmission logic of the industrial chain, the rise in crude oil prices not only directly pushes up the cost of naphtha, but also drives the price of the entire aromatic industry chain upward. As a related product of toluene, the price of pure benzene was boosted by crude oil and rose by 3%, breaking through the previous shock range of 5200-5300 yuan/ton, forming indirect support for the price of toluene. In addition, geopolitical conflicts have led to a rise in global shipping costs, with VLCC (Very Large Tanker) freight rates from the Middle East to China rising to US $18/barrel from US $12/barrel in February 2026, and shipping insurance costs rising by more than 50%, further exacerbating the trade cost of toluene and becoming another important driver of price increases.

(II) sharp swings in market sentiment

the rise in risk aversion triggered by geopolitical conflicts has significantly changed the expectations and behavior of market participants. On the one hand, some investors and traders are worried that the long-term blockade of the Strait of Hormuz will lead to a shortage of naphtha supply in the Middle East, which will affect the supply of toluene raw materials. Therefore, they have increased their inventories and promoted a phased increase in market demand. Data show that in the first week of March 2026, domestic toluene social stocks fell 3.2 percent to 187000 tons from the end of February.

On the other hand, the market's cautious attitude towards the duration of the conflict has also led to increased price volatility. In June 2025, the historical experience of the U. S.-Iraq conflict quickly subsided within 72 hours has caused some operators to hold a wait-and-see attitude towards the impact of this conflict. This sentiment is reflected in the futures market. The main toluene futures contract rose to 5680 yuan./Ton then fell back, and the closing price on March 3 was 5520 yuan/ton, with a one-day amplitude of 2.8.

The operation of traders in the spot market showed obvious differentiation: some traders took advantage of the high mood to stock up, and a large trader in East China purchased 2000 tons in a single day on March 1. On the other hand, some traders were worried about the price drop after the situation eased and chose to ship quickly to lock in profits. Shipments of some traders in South China increased by 40% compared with normal days. This differentiation operation makes the price fluctuation of toluene market more intense, and the transaction activity shows the characteristics of stage alternation.

Subtle changes in the pattern of (III) supply and demand

from the supply side, China's toluene production mainly depends on domestic refineries, in 2025 domestic toluene production of 12.8 million tons, imports accounted for only 8.7 of the total supply. Although China's imports of pure benzene have almost no Iranian sources, and Saudi sources in the Middle East account for only 1% of total imports in 2025, the rise in international crude oil and naphtha prices triggered by geopolitical conflicts still affects the production decisions of domestic refineries through cost transmission. Some independent refineries have reduced their toluene operating load from 85 per cent to 78 per cent due to rising costs, and individual refineries have even temporarily switched to other high value-added aromatic products, resulting in periodic fluctuations in toluene supply.

At the same time, the Strait of Hormuz blockade may affect the Middle East naphtha exports, China's partial dependence on the Middle East naphtha imports of refineries (such as Zhejiang Petrochemical, Hengli Petrochemical, etc.) may face raw material supply pressure, and thus adjust toluene production. It is estimated that if the Middle East naphtha imports fell by 10%, the domestic supply of toluene will be reduced by about 2.1.

From the demand side, the downstream demand for toluene is mainly concentrated in the fields of disproportionation (42%), oil blending (28%) and chemical solvents (15%). Rising costs due to geopolitical conflicts have increased production costs for downstream companies, with some companies reducing their toluene purchases or looking for alternative products. For example, in terms of oil demand, with the increase in gasoline prices, domestic gasoline consumption fell by 1.8 in the first week of March, which in turn affected the demand for toluene by oil companies.

However, there are also some downstream enterprises out of concern about the future price will continue to rise in advance stocking, in the short term to support the market demand. Data show that in the first week of March 2026, the operating rate of domestic disproportionation plants remained at a high level of 92%, and the purchase volume of some chemical solvent enterprises increased by 15% compared with the end of February, making the demand for toluene relatively stable for a certain period of time.

3. Outlook and Countermeasures

in the short term, the uncertainty of the geopolitical situation in the Middle East will continue to dominate the toluene market. If the blockade of the Strait of Hormuz continues, the international crude oil price may exceed 90 US dollars/barrel, and the toluene price is expected to further rise to 5800 yuan/ton; if the conflict eases and the crude oil price falls, the toluene price may fall back to 5300-5400 yuan/ton range.

For domestic toluene industry chain enterprises, it is suggested to pay close attention to the development of geographical situation, optimize the raw material procurement strategy, and reduce the risk of cost fluctuation through the combination of long-term contract and spot procurement. At the same time, downstream enterprises can explore alternative raw materials, such as increasing the proportion of mixed aromatics, dimethyl ether and other products, to ease the pressure brought by the rising price of toluene. In addition, enterprises should strengthen inventory management and flexibly adjust inventory levels according to market expectations to avoid losses caused by price fluctuations.

4. Coping Practice of Wuhan Biet Co., Ltd

in the process of global economic integration, geopolitical conflicts, regional trade barriers, international logistics fluctuations and other geopolitical risks are like hidden reefs, threatening the stable operation of the supply chain of chemical enterprises. Wuhan Biet Co., Ltd. as a deep-cultivated toluene oxidation products, business radiation global chemical enterprises, face the challenges of geo-risk, through the diversification of raw material procurement, inventory dynamic control, customer coordination and linkage of three major initiatives, to build a more resilient supply chain system.

Diversification of 1. raw material procurement

Dynamic control of 2. inventory

3. customer collaborative linkage

In the future, with the continuous changes in the global geopolitical landscape, Biet Chemical will continue to uphold the spirit of innovation, continue to optimize the supply chain management system, and build a solid foundation for the steady development of the company.