The Impact of The Iran War Extends Beyond Oil, And this ASX Company is the Poster Child for It!

It is easy to think the Impact of The Iran War is simply businesses in the oil space or that use oil in their operations (for instance freight businesses). Or by extension, companies in the ‘consumer discretionary’ space that find due to higher energy prices (and interest rates), that their goods are more discretionary than ever. But news out of one particular ASX company shows even companies not in oil, and are not discretionary (at least in theory), are being directly impacted.

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What investors need to understand about the impact of the Iran war

Before we reveal the identity of the company, we need to cut to something most investors rarely have to think about in practice. Oil is not just a fuel. It is a raw material embedded in thousands of products that seem to have nothing to do with energy. And when the Strait of Hormuz is blocked, the consequences ripple far beyond the petrol station forecourt.

For the sake of those who’ve been on Planet Mars, the Strait of Hormuz is the narrow channel through which roughly 20% of the world’s oil and a significant share of global liquefied natural gas (LNG) passes. The impact of oil shocks flow through supply chains, into factories, and eventually onto the shelves of businesses that could not look less like energy companies.

Iran’s closure of the Strait of Hormuz disrupted approximately 20% of global oil supplies and significant LNG volumes, with Brent crude surging past $120 per barrel following the blockade. QatarEnergy, the world’s largest LNG exporter, declared force majeure on all its contracts – a seismic event for global gas markets. But the disruption to physical oil and gas flows was only the most visible part of the shock. Less visible, but equally consequential, was what that shock did to the petrochemical feedstock market. Feedstock is the invisible industrial layer that sits between crude oil and an enormous array of finished goods.

Crude oil and natural gas, when refined and processed, do not just become fuel. Ethylene and propylene (produced from cracking hydrocarbons like naphtha) are raw materials in nearly every petrochemical supply chain, ending up in manufactured goods found throughout our homes.

These two chemicals are the building blocks of most modern plastics: polyethylene, polypropylene, PVC, and dozens of other polymers present in products from food packaging to medical devices to construction materials. When crude prices surge and LNG supply collapses, the cost of producing these chemicals rises sharply, and manufacturers downstream feel that pressure whether or not they ever touch a barrel of oil directly.

The ASX company that hit home the reality

Reece (ASX:REH) is Australia’s largest plumbing supplies distributor. While it has not yet put anything out to investors, the AFR reported it told customers it was significantly lifting prices in response to the conflict and its impacts.

Now, the pipes that plumbers install are not made of copper or clay. The overwhelming majority of modern plumbing pipe is made from PVC (polyvinyl chloride) or polyethylene, both petrochemical derivatives. PVC is derived primarily from ethylene and chlorine. Ethylene, a petrochemical product, is obtained from the steam cracking of hydrocarbons such as naphtha or ethane, making it vulnerable to fluctuations in global oil prices and geopolitical events affecting major energy-exporting regions.

When Brent crude spikes past $120 a barrel, the naphtha that chemical plants use to produce ethylene becomes dramatically more expensive. That cost increases the price of ethylene, which increases the price of vinyl chloride monomer, which increases the price of PVC resin, which increases the price of the pipe in Reece’s warehouse. By the time it reaches a building site in Western Sydney, that pipe has passed through four or five separate price increases, none of which had anything to do with oil in the direct sense an investor might assume.

Add to that the secondary effect: commercial vessels have been avoiding the Bab al-Mandab Strait and the Suez Canal route in preference for the Cape of Good Hope, adding weeks to shipping times and significant fuel costs to every container arriving from Asia. Much of the hardware in Reece’s catalogue (tapware, toilet cisterns, bathroom fittings) is manufactured in China and Southeast Asia. When ships take the long way round, freight rates climb, and importers like Reece absorb that cost before passing it on.

So in lifting prices, Reece is not being opportunistic. It is transmitting a supply chain signal that began in the Strait of Hormuz and arrived, via ethylene crackers and container ships, at the doorstep of the Australian building industry.

Agriculture could be vulnerable

Fertiliser is another example that tends to surprise people. Nitrogen-based fertilisers (urea and ammonium nitrate being the most common) are manufactured from ammonia, and ammonia is produced almost entirely from natural gas. The manufacturing process, known as the Haber-Bosch process, requires enormous volumes of gas as both a chemical feedstock and an energy source. When QatarEnergy declared force majeure and LNG prices surged, the cost of making ammonia, (and by extension, the fertilisers that sustain global agricultural output) spiked sharply.

The conflict was characterised by the International Energy Agency as the “greatest global energy and food security challenge in history.” That description was not hyperbole. Fertiliser price surges translate directly into higher costs for grain, vegetables, and meat, often on a lag of several months as planting and harvest cycles work through the system. For Australian agricultural companies and food processors, the Strait of Hormuz blockade is not a distant geopolitical event. It is a direct input cost shock. And unlike an oil refiner who can at least hedge crude exposure, a wheat farmer or cattle grazier has limited ability to insulate against a sudden 40% increase in the price of urea.

Tyres, Roads, and Synthetic Rubber

Here is a less obvious one. Modern vehicle tyres are not made purely from natural rubber, they are a blend of natural and synthetic rubber, and the synthetic component is derived from butadiene, a petrochemical by-product of ethylene production. The shortage of plastic pipe during the pandemic illustrated how a shortage of ethylene produced unending price increases across multiple downstream industries simultaneously. The same mechanism applies now: when ethylene production becomes more expensive, butadiene prices follow, and the cost of synthetic rubber rises with it.

This matters for a wide range of businesses beyond tyre manufacturers. Any company that operates a fleet (logistics groups, miners, transport operators) suddenly faces higher tyre replacement costs. Construction companies using heavy equipment see maintenance budgets stretched. Retailers with large distribution networks absorb the pressure through their cost of goods. For investors in industrials and resources, this is an often-overlooked secondary effect of an oil shock: the cost does not arrive as a fuel bill. It arrives as a tyre quote.

The Common Thread

What connects plumbing supplies, fertilisers, and vehicle tyres is the same underlying fact: the modern industrial economy is built on a petrochemical substrate that is almost impossible to fully see from the outside. Most manufactured goods contain some component that began life as oil or natural gas, processed and transformed through a chain of chemical reactions into something that looks completely unrelated to energy.

Energy remained the sole advancing sector among eleven ASX market categories during the Iran conflict while materials suffered the steepest losses, a seeming paradox that reflects investor instinct rather than economic logic. In practice, the knock-on effects of an energy supply shock flow through industrials, consumer staples, agriculture, and construction just as surely as they flow through refiners. They just take longer to arrive, and they arrive in disguise.

When companies like Reece raise prices and blame the Middle East, investors should resist the temptation to dismiss it as an odd non-sequitur. The Strait of Hormuz is, quietly, one of the most important chokepoints in the global cost structure of everyday goods. What passes through it does not stay there. It ends up in your walls.