The European Union has used a series of strategies, laws, and tools to address supply chain resilience. Green tech and critical minerals have been at the core of this effort. But actions to address the chemical supply chains have been slow and late, even though chemicals are key to European resilience and competitiveness as much as critical minerals are.
The car parked on your street runs on tires vulcanized with sulfur and reinforced with carbon black. The hospital drip keeping a patient alive is packaged in PVC stabilized with calcium-zinc compounds. Chemicals are not a sector; they are the basis of our societies. And while Europe used to be a leader, its grip on that lead is loosening at a pace that should alarm anyone who thinks seriously about the continent’s economic security.
A Shrinking Sector
In a too well known dynamic, in 2025, Europe’s share of the global chemical market decreased to 13 percent, while China led global sales with 46 percent. The European chemical industry still generates €635 billion in annual turnover and employs 1.2 million workers, but much like for some of the sectors it services such as automotive, the trajectory is one of managed decline. However, the chemical industry still supports 19 million jobs across EU supply chains, a figure that should attract the attention of every finance and economy minister in the bloc.
In Europe, over 11 million metric tons of chemical production capacities were closed between 2023 and 2024 and these are assets unlikely to reopen due to capital costs and community resistance. In other words, they are long-term if not permanently lost industrial capacity. The chemical production of the EU27 remains at 9.1 percent below pre-2020 levels, and capacity utilization remains at a historic low.
In 2025, the European Commission proposed the EU Chemical Industry Action Plan aimed at increasing resilience and competitiveness through, for example, a Critical Chemical Alliance. Additional measures included fiscal and tax incentives to increase demand for safe chemicals (in line with the Chemicals Strategy for Sustainability of 2020) as well as a reduction in bureaucratic burdens and energy costs while minimizing emissions. Yet, energy costs, competition from China, and the urgency of securing chemical supply chains demand faster action.
The Energy Trap
The main causes that are putting Europe’s chemical industry under stress of Europe’s are well-understood, if still poorly addressed. Gas prices within the EU remain two to three times higher than in the United States, rendering European producers uncompetitive on a global scale. This is a structural condition with structural consequences, which have become ever more dire in light of one energy crisis after another, with the oil and gas price spikes as a result of the US-Israeli attack on Iran only the latest instalment.
According to 2024 data, ethylene production in Europe is 3.2 times more expensive than in the US. Ethylene is the world’s most produced organic chemical, the feedstock for polyethylene plastics, antifreeze, fibers, and hundreds more downstream products. When making it costs three times as much in Europe as in the US, eventually European producers don’t merely struggle, they go out of business.
BASF, Europe's flagship chemicals giant, is perhaps the best example. The company has been struggling with European energy costs and as result in 2025, it dismantled parts of its Ludwigshafen complex, the world’s largest integrated chemical site, shuttering ammonia, caprolactam, and toluene diisocyanate plants in a restructuring that cut about 2,600 positions, more than 2 percent of its global positions.
Even as the German giant has been shrinking its European footprint, cutting thousands of jobs and closing plants, it has been constructing what will become its third-largest production complex in the world—on Chinese soil. The Zhanjiang Verbund site is BASF’s largest-ever single investment, budgeted at around €10 billion upon completion.
BASF has committed to capture the growing chemical market in the Asia Pacific region. The commercial logic is defensible. BASF expects roughly 80 percent of global chemical industry growth to be concentrated in Asia by 2035.
If Sino-European relations were to deteriorate sharply, BASF’s exposure would have consequences for the supply chains of hundreds of downstream European customers who rely on BASF intermediates. In doing so, the company faces the usual uncomfortable paradox that lies at the heart of EU industrial strategy at large. The continent’s flagship producers are rationally optimizing for global growth, while simultaneously deepening their entanglement with the one country whose dominance poses the greatest strategic risk to Europe’s industrial autonomy and geopolitics.
Enter China
If energy costs are the structural threat, China is the geoeconomic one. Beijing’s dominance across the chemical value chain is now so pervasive that it has ceased to register as remarkable. China controls approximately 46 percent of global chemical sales, a share built, as for many other sectors, through deliberate industrial policy, state-backed investment in chemical parks, and subsidized energy for domestic producers. The result is a dependency that runs through virtually every EU manufacturing sector.
China dominates the production of phosphorus and phosphate compounds critical to fertilizers and lithium batteries. It controls the supply of key precursor chemicals used in semiconductor fabrication and refrigerants. It has built dominant positions in titanium dioxide, vitamin precursors, and a long tail of specialty intermediates whose importance becomes apparent only at the moment of disruption.
The pattern is consistent: China is investing in chemical-processing capacity that others have allowed to atrophy.
Defense Implications
If any single example crystallizes the life-or-death stakes of chemical supply security, it is nitrocellulose. This cotton-based compound, when treated with acid, becomes the essential ingredient in modern artillery propellant. It’s what transforms 155mm shells from steel into the force behind Europe’s defense revival, and the Europeans don’t have enough of it.
Europe’s nitrocellulose demand for artillery propellants is estimated at around 20,000 tons annually, but current internal production is likely between 4,500 and 10,000 tons with the effort being led by Rheinmetall in Germany, Eurenco in France, and other producers in the Czech Republic and Poland. That gap translates directly into a shortfall against Europe's stated ammunition production targets and defense ambitions.
Where does the bottleneck originate? In China. Nitrocellulose is made from cotton linters, a byproduct of cotton processing. Rheinmetall's chief executive Armin Papperger told the Financial Times in April 2024 that Europe relies on China for more than 70 percent of its cotton linters. A country that is actively supporting Russia’s war against Ukraine thus sits at the upstream end of the supply chain on which European artillery production depends. The circularity is not merely awkward; it’s a strategic liability of the first order.
The struggle to rebuild European production is now underway. Rheinmetall acquired Hagedorn-NC, a German industrial nitrocellulose maker, in April 2025, with plans to convert production to military-grade output. France’s Eurenco restarted its Bergerac production line, and Poland is building a new hub with Grupa Azoty. These are welcome developments, but perhaps, a decade overdue.
The lesson extends well beyond nitrocellulose. Defense-grade chemicals constitute a distinct and underappreciated category of strategic input. Explosives precursors, rocket propellant oxidizers, energetic binders, and the specialist solvents used in warhead manufacture all share a common profile: They were allowed to consolidate into single suppliers, many of them in jurisdictions that are now adversarial or at best unreliable. Rearmament strategies built on top of such supply chains are thus houses of cards. Europe cannot sustain production without securing the molecular foundations of its ammunition industry.
The Resilience Multiplier
What makes chemicals distinctive, and similar to critical minerals, is their multiplier effect through industrial value chains. A shortage of a commodity chemical doesn’t merely harm chemical companies, it cascades onto all the sectors reliant on chemicals, which include automotive, consumer goods, construction, and energy, to mention a few. A phosphate shortage hits fertilizer producers, which hits farmers, which hits food processors, which hits supermarket shelves. An epoxy resin shortfall grounds wind turbine blade production. A solvent disruption halts semiconductor cleaning processes. And in contrast to critical minerals, the mapping of chemicals supply chains is even harder; the connectivity is dense and the vulnerabilities compound.
Europe has grasped this, and sought remedies, for semiconductors (the Chips Act), for batteries (the Net Zero Industry Act), and for raw materials broadly (the Critical Raw Materials Act). It has been slower to apply the same logic specifically to the chemical molecules that sit between those raw materials and finished industrial products. The European Commission’s Chemicals Industry Action Plan, published in July 2025, represents a belated acknowledgment.
The policy response requires three things that Europe has historically struggled to combine: speed, capital, and strategic coherence.
On energy, the diagnosis is simple even if the cure is (increasingly) hard. The industry has improved its energy efficiency by 40 percent since 1990, which means further efficiency gains are increasingly marginal. The only durable solution is cheap, abundant low-carbon electricity, the kind that accelerated renewable buildout and reformed capacity markets could deliver, if politics permits.
On strategic dependencies, as for critical minerals, the EU needs a frank assessment of which molecules constitute genuine security risks, not merely economic inconveniences. Rare earth separation compounds, specific pharmaceutical precursors, hydrogen cyanide derivatives used in mining, and fluorochemicals used in semiconductor fabrication all warrant scrutiny. Thus, the EU should create binding benchmarks, designate strategic projects, and unlock financing. The Critical Raw Materials Act’s ambition to cap single-country dependency at 65 percent across the value chain should be extended explicitly to processed chemical intermediates.
On industrial policy coherence, Europe must start treating its chemical industry as infrastructure to be secured. Chemicals contributed €47 billion to the EU’s positive manufacturing trade balance in 2024. The EU chemical industry spends approximately €11 billion per year on research and development. This is an industry worth fighting for.
Francesca Ghiretti is IPQ’s Geoeconomic Front Lines columnist. She is director of the Economic Security and Resilience Initiative and a research leader at RAND Europe.
