‘The scars will remain’: Petrochem’s founder counts cost of war

• Yogesh Mehta rues Hormuz situation
• Unimpressed by alternative routes
• Crisis has hobbled UAE’s re-export model

“Frustration, insecurity, anxiety…” These are a few of the adjectives that dominate how veteran UAE businessmen Yogesh Mehta feels about the US-Israeli war with Iran that has crippled trade all around the world.

For 36 years, Mehta has watched Dubai’s transformation from a fishing village to a global metropolis, through the Gulf War, the 2008 crash, the Arab Spring and Covid-19.

He has navigated each of those crises from the same vantage point: at the helm of Petrochem Middle East, the chemicals distribution empire he founded in 1995 and built into a regional powerhouse with AED2 billion ($545 million) in annual turnover and 250 employees across seven countries.

But even he has never seen anything quite like this. Mehta, whose business-speak is littered with metaphors, describes the UAE as “a clean white shirt” now “stained with drone and missile attacks”.

The effective closure of the Strait of Hormuz, through which 90 percent of Petrochem’s business flows, has understandably hit the company hard, and there remains no meaningful replacement or alternative route for the company’s operations, says Mehta.

The company’s Jebel Ali terminal, capable of handling 180 chemical variants across 50 bulk storage tanks, was well-stocked when the conflict first began. The initial surge in oil prices that accompanied the war’s outbreak briefly helped with the margins. But this has provided Mehta no reassurance. As prices stabilise, the trimming of margins will begin.

“If there’s not enough margin, then you have a challenge with the overheads,” he said, noting that as a large company, higher overheads becomes a weakness.

“We are now saving for the rainy day that’s going to approach,” he says. “If the crisis continues for longer, then we will have to burn cash.”

That is not a problem unique to Petrochem. It is a warning for the wider economy, says Mehta.

Chemicals underpin construction, pharmaceuticals, energy and manufacturing – the key ingredients of any functioning economy. When they stop moving, everything downstream slows with them.

Economy at half-capacity

As much as the closure of the Strait of Hormuz has reignited conversations around local manufacturing – something highlighted at the recent Make it in the Emirates event – it has inhibited the UAE’s ability to produce locally.

More than 90 percent of Petrochem’s imported raw materials go to local manufacturing industries, with much of the processed output re-exported into Asian markets. The model – consolidate in Jebel Ali, repackage, add value, re-export – is a microcosm of the country’s trade model itself, given the UAE is among the world’s top five re-export hubs.

That model is now running at half speed.

“[UAE factories] are manufacturing at half capacity or less because they are built to export,” says Rohan Mehta, Yogesh’s son and the company’s managing director.

With both imports and exports curbed, manufacturers are limiting production.

“The crisis has taken two wheels off the car,” his father adds.

The ‘fashionable’ and the real

Like many regional businesses, Petrochem has tested the alternative corridors, such as the UAE’s Khorfakkan and Fujairah and the Red Sea port of Yanbu on Saudi Arabia’s western coast.

Mehta is grateful for their existence and the government’s initiative to mobilise them. He does not share the enthusiasm with which some, including his son, have greeted them as a structural fix.

“Let’s not be fashionable,” he says.

Saudi Arabia’s overland route, the so-called back door to the Gulf, is a long road through a suffocated corridor.

The alternatives are untested, costly and even add confusion rather than clarity to already strained supply chains. “Trade routes are not like a pizza pie,” he says, “where you can draw and cut the edges as you want.”

An unlikely saviour

The war has, in one respect, produced an unexpected reversal. Mehta has spent years criticising China for flooding chemical markets with excess supply and driving prices to levels that undercut competitors and distort global trade.

But it seems like the critique was conditional on a world in which the Strait of Hormuz stayed open.

“China has been the saving grace – factory to the world,” he says now. Chinese production scale, logistics capacity and willingness to fill supply gaps have provided a buffer when the world needed it the most. India, for instance, is buying products from South Korea, Taiwan and China.

Yesterday’s adversary is doing the heavy lifting in a war-torn trade world today.

Alternative routes, new alliances and emergency stock buffers can buy time. But the only absolute solution for businesses, economies and governments is a total resolution of the conflict.

“It will have to be in a way where it’s a win-win for most. It will never be win-win for all,” he said.

“The wound may heal and some resolutions may be found,” he says. “But the scars will remain, because the hurt is very deep.”

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