Petrochemicals industry faces strategic overhaul amid geopolitical and AI-driven disruptions

The global petrochemicals sector is being pulled into a deeper strategic reset as geopolitical strain, chronic excess capacity and the spread of artificial intelligence reshape the industry’s economics, according to Divy Malik, partner at McKinsey & Company.

Speaking at the 11th Injection, Blow Moulding, PET International Business Summit & Exhibition in Mumbai, organised by ElitePlus, Malik said the recent conflict in West Asia had exposed the fragility of energy and ...

chemical supply chains and forced companies to reconsider both immediate operations and longer-term investment plans.

He said petrochemical executives are now having to navigate a broad set of geopolitical pressures, from trade restrictions and currency controls to security risks and shifting alliances. The result, he argued, is a more volatile planning environment in which disruption has become a central business assumption rather than a temporary exception.

The crisis in West Asia, Malik said, sent shockwaves through energy markets and industrial logistics, with feedstock prices surging across several product chains. Butadiene and urea rose sharply on tight inventories, while methanol, polyethylene and polypropylene also saw substantial increases. PET polymers were less affected, helped by additional capacity in China.

McKinsey’s assessment broadly reflects the wider industry view. Dow’s 2026 outlook says the Middle East conflict disrupted a significant share of global oil capacity and affected a large portion of ethylene and polyethylene supply, prompting producers to rethink feedstock flexibility, manufacturing footprints and supply security.

Although the immediate pressure has eased since the ceasefire, Malik warned that recovery will not be instant. Restarting large petrochemical and liquefied natural gas facilities safely takes time, and he expects supply chains to need several months before conditions begin to normalise.

The short-term shock has landed on top of a much more difficult structural downturn. Malik said the industry was already in a severe cyclical slump, with oversupply and slower demand growth dragging on operating rates. He argued that capacity utilisation is likely to stay below historical norms until the end of the decade, delaying a broad-based recovery for producers.

That view is echoed in industry commentary from S&P Global, which has pointed to overcapacity in olefins and growing pressure on older plants, especially in Europe, where weak feedstock and energy competitiveness is accelerating rationalisation and consolidation.

For packaging companies, the downturn may offer some relief in the form of softer resin prices, even as producers struggle with margin pressure. But Malik said the changing supplier landscape is likely to reshape commercial relationships across the packaging value chain as companies rationalise assets, pursue mergers and acquisitions, cut costs and deploy new technologies.

Artificial intelligence is becoming part of that adjustment. Malik said the sector is moving beyond basic automation, with AI increasingly used to improve plant efficiency, strengthen logistics and identify growth opportunities. McKinsey’s own trade research has highlighted AI-linked goods and equipment as an important force in global commerce, underscoring how digital investment is now intertwined with industrial strategy.

UNCTAD has meanwhile warned that geopolitical tensions, particularly in the Middle East, are disrupting energy markets and key shipping lanes, adding to pressure on global trade and growth. Against that backdrop, Malik said the diversification of supply chains away from China could create a stronger opening for Indian packaging firms.

He argued that companies able to improve resilience, invest in technology and advance sustainability will be better placed to serve Western markets as multinational customers continue to pursue a China-plus-one sourcing approach.

Source: Noah Wire Services