Plastic is the hidden cost of the war in Iran

New York (CNN) — Experts are warning that consumers will see a rise in prices for a variety of plastic consumer goods due to the war with Iran.

Plastic products are partly made out of oil, which has gone up more than 40% since the start of the war in late February. As a result, products like disposable cutlery, bottled drinks and garbage bags could be among the first to rise in the coming weeks, said Patrick Penfield, a professor of supply chain practice at Syracuse University. 

But plastics are used across supply chains, from packaging to manufacturing, meaning it can be difficult to pinpoint exactly where the costs come from in a product’s final price tag.

“It’s one of those things where you shake your head at the store. You don’t know if it’s more expensive due to general inflation, rising rents, but you are paying for this,” Joseph Foudy, a professor of economics at the NYU Stern School of Business, told CNN.

Higher packaging costs may drive up food prices in two to four months as companies work through existing inventory, Penfield said. In industries like automotive manufacturing — where plastic is just one of many inputs and pricing is often locked into fixed contracts — it could take less than a year for higher costs to filter through.

Why plastic prices are rising

Behind these increases are rising oil and natural gas prices, which have surged in part because of the Iranian threat to shipping in the Strait of Hormuz. The waterway plays a critical role in global energy and petrochemical supply chains.

The strait is a conduit for a fifth of global oil and liquefied natural gas supply.

Since the war began, crude oil has risen from $67 a barrel to above $98 at its peak on March 20, while benchmark natural gas prices in Asia and Europe have jumped more than 60% in the same period.

Over 99% of global plastics are derived from fossil fuels, according to the Center for International Environmental Law.

That means higher energy prices don’t just raise manufacturing costs, but also the cost of the materials themselves. That includes polyethylene (PE) and polypropylene, two of the world’s most widely used plastics.

The Middle East is a major supplier of plastic raw materials. The region accounts for roughly a quarter of global polyethylene and polypropylene exports, according to S&P Global Energy data.

“Approximately 84% of Middle East PE capacity relies on the strait for waterborne exports,” Harrison Jacoby, director of polyethylene at Independent Commodity Intelligence Services, a global chemical and energy information provider, told CNN.

Prices for plastic resins have already surged by double digits across most manufacturing categories in the past 30 days, according to the Plastics Exchange, an independent clearinghouse that tracks transaction data for the resin market.

“In my 25 years (in the plastics industry), I’ve never before seen a (monthly) PE increase this large,” said Michael Greenberg, CEO of the Plastics Exchange and its market intelligence platform, Resintel.

Few alternatives

Plastics are deeply embedded across industries, from packaging and construction to auto manufacturing and healthcare. Switching to alternatives made from paper or glass is often expensive and time-consuming, requiring changes across entire manufacturing processes.

In the short term, “there are not a lot of substitutes for plastics,” Foudy said.

Packaging companies are more likely to adjust existing designs and use thinner plastics or make them less expensive, Penfield noted.

Products made mostly of plastic, like trash bags, are likely to see sharper price increases compared to more complex goods like automobiles, where plastic is just one of many inputs.

But if high oil prices are sustained for even three or four months, consumers can expect to pay higher prices for potentially another year or two, Foudy added.

“Even if the war ended tomorrow, there’s still going to be a fairly long amount of time before the (plastic) supply chain normalizes itself,” Greenberg said.

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