The glow of fires rising from the oil fields illuminated the Saudi desert at night in the 1950s and 1960s, to the point that drivers on the road between Abqaiq and Dhahran, in the east of the Kingdom, did not need to turn on their headlights.
This glow, which former Saudi Oil Minister Ali al-Naimi describes in his memoirs, was not a sign of a new industry blossoming, but rather evidence of a resource that was being wasted every day: the gas associated with oil.
Gas, which was viewed at the time as an annoying side product, would later become the basis for a broad industrial and economic transformation, and a raw material used in the manufacture of fertilizers, plastics, synthetic fibres, car parts, and thousands of products that today have become part of the details of our daily lives.
Crude oil is often not alone in the ground, as natural gas is found with it in the same rocky layers, only to come out to the surface when the oil is extracted.
For decades, the Gulf states had no practical use for large quantities of this gas.
So it was burned in the air.
From waste to industry
Abdul Wahab Al-Saadoun, who served for decades as Secretary-General of the Gulf Petrochemicals and Chemicals Federation, says that the idea of utilizing associated gas rather than burning it dates back to the 1960s.
Saudi Oil Minister Abdullah Al-Tariqi, the first to hold this position in the Kingdom, was one of the most prominent people who adopted this idea.
Al-Tariqi was one of the most influential figures in the Arab oil world of his generation, and one of the most prominent driving forces behind the founding of OPEC in 1960, at a time when oil-producing countries were seeking to wrest greater control over their oil industries from the foreign companies that were dominating them.
But Tariqi's ambition went beyond controlling oil extraction. He believed that the Gulf states should not only extract their hydrocarbon resources from the ground, but also control what happens to them after that.
However, several obstacles stood in the way of turning this vision into reality.
There was no infrastructure to collect associated gas, the foreign companies that dominate the oil sector were not willing to bear the cost of building it, and the Gulf states did not yet have the capital necessary to do it themselves.
But this reality changed in 1973, with the outbreak of the October War.
During the war, Arab producers announced the cessation of oil supplies to countries that supported Israel, which caused the price of crude to rise about four times, turning oil revenues that were estimated at hundreds of millions of dollars into billions.
“The oil price shock was the turning point,” Al-Saadoun says. “It gave the Gulf countries the financial ability to invest in infrastructure that could not have been built before.”
In Saudi Arabia, the main gas network in 1977 began collecting associated gas that had been flared in fields.
A year earlier, a royal decree was issued establishing the Saudi Basic Industries Corporation, SABIC, which contributed to converting a wasted resource into industrial products.
Starting from Kuwait
But Saudi Arabia was not the first Gulf country to move in this direction.
In 1963, Kuwait established the first chemical production facility in the region, to produce ammonia and urea used in the fertilizer industry.
However, Saudi Arabia, with its much greater oil wealth and gas resources, would later move the industry to a completely different level.
The rest of the Gulf countries did not follow the same path, as policies alone did not determine the form of industry in each country, but rather the nature of the underground resources, as well as the timing of the start of industrialization, played a fundamental role in that.
Al-Saadoun says, “The availability of raw materials has always been the factor that determines the type of products and the size of production.”
The chemical composition of natural gas varies from one field to another.
Associated gas in Saudi Arabia is rich in ethane and heavier compounds that can be efficiently converted into ethylene and propylene, which are two of the most important basic materials used in the plastics industry.
As for the North Field in Qatar, its gas is predominantly methane, which makes it more suitable for the production of ammonia, including urea used in the manufacture of fertilizers.
Today, Qatar is one of the world's largest producers and exporters of urea, while the gas industry itself has become a major focus of its economy.
In contrast, Kuwait, in terms of its gas composition, could have developed a broader plastics industry as well. But it started early, at a time when ammonia and urea production was more industrially established in the region.
Thus, timing was as important as chemistry.
In the UAE, specifically in Abu Dhabi, associated gas contributed to building the Borouge Company, which became one of the largest producers of polyethylene in the world, while the Sultanate of Oman and Bahrain, where gas resources are more limited, focused more on refining crude oil and converting it into fuel.
The result today is a multi-billion dollar industry that supplies the world with essential products.
In 2023, the six Gulf Cooperation Council countries exported chemical and petrochemical products worth $64.6 billion, while production capacity reached a record level of 156.2 million tons, or about six percent of global petrochemical production.
Saudi Arabia leads petrochemical production in the Gulf by a clear margin, and alone provides about a quarter of the globally traded quantities of polypropylene, a type of plastic used in products ranging from food containers to car parts and medical syringes.
But the size the industry has reached does not mean that the bet on economic diversification has been completed.
After decades of building factories and expanding production, the value of oil and gas exports is still much greater than that of petrochemicals.
Adnan Mazraei, a researcher at the Peterson Institute for International Economics, says that petrochemicals today represent about a quarter of the size of the manufacturing sector in the GCC countries, but they only constitute about four percent of the gross domestic product.
That is, the industry has expanded the industrial base of the Gulf countries, without yet grabbing a position equal to the weight of oil and gas in their economies.
Mazraei believes that increasing its contribution in the future requires a greater move to higher stages of the value chain, through the production of petrochemical materials used in sectors such as electronics, medicines and cars.
The bulk of the Gulf industry is concentrated in basic petrochemicals and polymers, while its presence remains more limited in the highest value specialized chemicals.
It seemed logical from an economic standpoint.
The abundance of relatively low-cost raw materials, coupled with large factory sizes and proximity to Asian markets, has given Gulf producers a strong competitive ability to produce these materials on a large scale.
But moving to more specialized products requires advantages of a different kind, from technology, research and development, to advanced expertise.
Al-Saadoun says that the Gulf has begun taking steps towards producing specialized chemicals, “but they are still timid steps.”
Despite this, the materials produced by Gulf factories are included in a wide range of goods, from packaging materials, textiles, and car parts to medical supplies and fertilizers.
But the industry's dependence on mass production and export has made its performance closely linked to the movement of global markets.
Al-Saadoun says that about 85 percent of Gulf production is exported abroad, which makes this industry “vulnerable to fluctuations in foreign markets.”
Data from the past decade clearly shows this problem.
Over the past decade, export volumes have remained relatively stable, while their value has been more volatile, peaking in 2022 before declining later.
Industry pressures are also evident in the results of some of its largest companies. In 2025, SABIC recorded a net loss amounting to about 25.8 billion riyals, or about 7 billion dollars.
Al-Saadoun says that part of the pressure was related to the price cycle, but he also points to assets that SABIC acquired in Europe and did not succeed in returning them to profitability, which caused them to drain the profits of the parent company before exiting it later.
But he indicates that the pressure on prices is likely to continue, in light of what he describes as “excess supply” in the global market.
Ironically, a large portion of this surplus comes from the market that for decades has played a major role in absorbing Gulf exports: China.
China: Competitive partner
More than half of Gulf petrochemical exports go to Asia, led by China.
For many years, the relationship seemed suitable for both parties: the Gulf possessed the raw materials and huge factories, and China was a huge market that was growing rapidly and needed more plastics and chemicals.
But this equation is starting to change.
Al-Saadoun says that China has adopted a strategy to achieve greater self-sufficiency, which presents Gulf producers with the challenge of finding alternative markets.
Michel Medan, a researcher at the Oxford Institute for Energy Studies, says that the Chinese ambition goes beyond simply reducing imports of petrochemicals, to build a chemical power capable of controlling broader parts of the supply chain.
Although China still depends on imports of some materials that it does not produce enough of locally, including naphtha and liquefied petroleum gas, it is increasing its capacity in producing polyethylene, polypropylene, and urea, which are products that constitute an important part of Gulf exports, and at the same time is advancing in the highest value specialized chemicals.
That is, it competes with Gulf producers in the products on which they built their strength, and is also moving towards products in which they themselves seek to expand.
The Gulf is trying to deal with this new reality by strengthening its position by investing within China itself, instead of just exporting to it.
The Aramco joint venture in Fujian, China, which is a huge refining and petrochemical complex, stands out in this context.
Such investments give Gulf producers more direct access to the Chinese market, while helping them secure demand for crude oil.
Al-Saadoun sees this path as an opportunity to move the relationship with China to a level beyond trade alone, and says that he hopes it will transform from a “buyer and seller” relationship to an “integration relationship” in production and technology.
But Maidan believes that these partnerships also carry a risk in the long term, as she points out that China has previously worked with partners “until it catches up with them. After that, these partners no longer have the same value as technology partners.”
While investing in China may give Gulf companies today a broader market and longer-term contracts, it also places them within an industry whose technologies and supply chains Beijing seeks to localize.
The more Chinese companies succeed in acquiring the technology and expertise they need, the less the need for a foreign partner will be in some parts of the industry.
Maidan summarizes this contradiction by saying that the Chinese ambition remains for “others to depend on China more than China depends on others.”
A more urgent test
While China represents a long-term challenge to the Gulf petrochemical industry, geopolitical tensions in the region pose a more pressing test.
Petrochemical exports from Saudi Arabia, Qatar, Kuwait, and Abu Dhabi depend to a large extent on passage through the Strait of Hormuz, the sea lane that connects the Gulf to Asian and global markets.
During the last war, this geography turned into a direct operational crisis.
Al-Saadoun says that some petrochemical factories stopped completely, while others operated at only about ten percent of their designed capacity with the disruption of shipping traffic through the strait.
The repercussions were not limited to the factories themselves.
According to Mazraei, the unrest led to a decline in the availability of some raw materials and an increase in transportation and insurance costs, and also raised the risk premium for the Gulf countries.
In some categories, raw material prices rose by up to 75 percent, and part of this increase was transferred to fertilizer prices, and from there to the cost of food.
Al-Saadoun says that the Gulf produces about 17 percent of the world’s nitrogen fertilizers, and that about 30 percent of global trade in urea and ammonia comes from the region.
He adds: "If Hormuz closes, this is not only an industrial problem. It is a food security problem."
The repercussions of the disruption to navigation are not limited to petrochemicals and related products, as the Gulf countries are also major producers and exporters of refined petroleum products, such as diesel, jet fuel, and gasoline. Diesel prices have risen as supplies shrink, while the cost of jet fuel has increased and the unrest has raised concerns about its continued availability in the markets.
But the effects of the disruption may go beyond disruption to supplies and prices in the short term.
Mazraei believes that the continued disruption of Gulf petrochemical exports may push buyers in Asia and Europe to reconsider their supply chains, by searching for new suppliers, building larger inventories, and obtaining a greater portion of their needs from closer sources.
Which means that some of the transformations imposed by the crisis may continue even after the return of navigation.
In light of what the crisis revealed about the dependence of the Greater Gulf states, albeit to varying degrees, on the Strait of Hormuz to transport their exports, Al-Saadoun sees the necessity of moving forward with the Gulf railway network project, the implementation of which has been delayed for years, and which could provide alternative paths in the future to transport some products to ports on the Red Sea or the Mediterranean.
But the end of the tensions that disrupted shipping through Hormuz may in turn present a different kind of challenge for Gulf producers.
Iran is the second largest producer of petrochemicals in the region after Saudi Arabia, and any broader return of its exports to global markets may add more supply to a market already suffering from surplus production.
Mazraei believes that such a return may put pressure on prices, but he points out that part of Iran's production capacity was damaged during the war, and that restoring it will require time and large investments.
Search for new markets
Al-Sadoun points to Africa as one of the most prominent potential markets.
Geographical proximity also gives Gulf producers an additional advantage in accessing these markets.
Al-Saadoun does not see this trend as separate from the growing Gulf partnerships with China, which is showing increasing interest in the African market. He points out that some investments and joint projects may give both parties a better position to access this market.
But Maidan puts an end to this intersection of interests.
While Gulf producers look to Africa as a potential market for petrochemicals and fertilisers, Meydan says that the interest of Chinese companies in the continent is shifting more towards renewable energy and low-carbon technologies.
It indicates that joint Gulf-Chinese investments in these areas, in Africa and other markets, may in turn open the door to more Gulf investments and sales in the African market, including petrochemicals.
The impact of these partnerships on the petrochemical market is still limited so far.
Burning continues
But the increasing trend towards clean energy, whether in China or in the new partnerships that may be established with the Gulf, in turn, opens another question for the Gulf petrochemical industry.
The industry, which arose partly from an attempt to benefit from gas that was wasted by burning, has not yet ended the problem of burning, while pressure is increasing on it to reduce emissions and reduce its environmental impact.
Aramco data shows that the total amount of gas burned in its facilities increased from about 27.5 billion standard cubic feet in 2023 to about 32.6 billion in 2025, an increase of approximately 18 percent.
Burning intensity also increased from 5.64 to 6.65 standard cubic feet per barrel of oil equivalent during the same period.
Aramco says that the increase in flaring intensity in 2025 is mainly due to the expansion of gas operations and pipeline maintenance work.
While this number includes flaring for operational or safety reasons, as well as flaring related to the absence of infrastructure needed to utilize the gas, it remains an indication that flaring has not completely disappeared from the industry.
This phenomenon is not limited to Saudi Arabia, as gas burning continues to varying degrees in other Gulf countries as well, while countries such as Russia, Iran, and Iraq top the list of countries that burn most gas.
But this does not eliminate the need for Gulf countries to reduce burning further in response to environmental challenges.
Not only that, the petrochemical industry faces broader pressures to reduce emissions and reduce its environmental impact, in light of the escalating risks of climate change.
Mazraei says that Gulf producers are in a “race against time in a way” to deal with increasing pressures to protect the environment and reduce emissions, especially in industries such as plastics.
The fires that used to light up the Saudi desert sky at night in the 1950s and 1960s have declined to a large extent, and the gas that fed them has turned into a source for feeding power stations and factories, and into raw materials used in the manufacture of thousands of products used around the world.
But the industry that has grown over decades now faces challenges of a different kind, which will determine its course in the coming decades according to its ability to adapt to a market in which the balance of demand and competition is changing, and pressures are increasing to reduce the environmental impact of the model on which it was based.
