Escalating tensions in the Middle East could drive higher commodity chemical prices and boost Dow’s margins, Citi said. The bank upgraded the chemical manufacturer to buy from neutral. Analyst Patrick Cunningham also lifted his price target to $40 from $28, which points to upside of 16%. “With the Iran conflict and closure of the Strait of Hormuz impacting global energy prices, capacity and shipments from the Middle East, and feedstock costs for Asian & European producers, we make significant upward forecast revisions to commodity chemicals,” the analyst wrote. “While the duration of the conflict remains uncertain, we believe the disruptions and shutdowns across the upstream LNG plants to downstream crackers in Asia and Europe could provide months of supply-driven pricing uplift.” DOW 1Y mountain DOW 1Y chart He added that Dow stands to capture attractive export dynamics and see greater margin expansion across chains such as olefins and polyolefins given increased pressure on both supply and costs. Cunningham noted that even if tensions rapidly deescalate, a number of factors support a “more persistent lift on global prices.” These include logistics, insurance and freight bottlenecks taking their time to work through the system. Feedstock supply availability and the inability to restart feedstock and energy-intensive units in a safe and timely fashion could also play a role, as could low inventory levels and select pockets of price momentum. In his base case, he assumes two to three quarters of disruption. “Longer-term, this tension and heightened risk in the Middle East could see fewer projects built in the region. China supply-side reform could be pulled-forward if older assets are impacted by shutdowns,” Cunningham wrote. “Overall, these factors could serve to heighten the long-term value of North American assets.” Shares of Dow have surged 47% this year, but are down 4% over the past 12 months.