The Kuwaiti Prime Minister has scrapped a lucrative joint venture with Dow Chemical, of the United States, after pressure from political opponents.

The move is a huge blow for Dow, which was to have been paid $7.5 billion (£5 billion) for its role in the joint venture. The global chemicals giant had intended to use the money to pay a large chunk of its $13 billion debt mountain.

Kuwait's state-run Petrochemical Industries had signed a deal this month with Dow to launch the joint venture, which was to trade as K-Dow Petrochemicals. The venture was part of Dow's strategy to reduce its exposure to the cyclical commodity chemicals business. However, the Kuwaiti state news agency said that the country's Supreme Petroleum Council, headed by Sheikh Nasser al-Mohammed al-Sabah, the Prime Minister, had decided to cancel the contract.

Dow borrowed $13 billion to pay for the acquisition of Rohm and Haas, a rival, this year. The deal will be completed early in the new year and Dow had hoped to use its profits from K-Dow Petrochemicals to pay off some of that borrowing.

The joint venture had angered some Kuwaiti parliamentarians, who said that the project should be scrapped because petrochemical sales have slumped amid the global financial crisis. Kuwait and Dow had already cut the value of the joint venture by more than 8 per cent to $17.4 billion this month after Kuwait demanded that it be allowed to reduce its contribution in the light of sharply falling global demand for petrochemicals.

The new company had been due to sell petrochemicals and plastics such as polyethylene, polypropylene and polycarbonate, used in products ranging from plastic bottles and compact discs to computers and agricultural compounds.

Four liberal Kuwaiti MPs had threatened to question the Prime Minister, who is a senior member of the country's ruling family, in parliament unless he scrapped the deal.

Opposition MPs had forced the Cabinet to resign in November when they questioned Sheikh Nasser on a another issue and Kuwait's Parliament has a history of challenging the Government.

The challenge could have presented the Prime Minister with a serious political problem. The same liberal opposition MPs also oppose the building of the $15 billion al-Zour refinery, for which final contracts have not yet been signed, despite an award in May.

With many developed countries in recession and emerging markets' economies experiencing a sharp slowdown, Dow and its rival chemical manufacturers are facing one of the worst slumps in demand for their products.

Dow said this month that it was shedding 11 per cent of its global workforce. The company, one of America's biggest chemical producers, said that it would lay off 5,000 full-time staff and 6,000 contract workers when it closes 20 production plants. Dow employs 43,000 people worldwide. A further 180 plants will sit idle until demand for Dow's products, which include food ingredients, pesticides, plastics and Styrofoam, picks up.

Andrew Liveris, Dow's chairman and chief executive, promised that he would not break the company's record of never missing a dividend. It has paid its quarterly cash dividend without interruption since 1912. Mr Liveris said at the time of the pledge: “I've said it before, but I'll say it again. We will not break that string. Not Dow. Not on my watch.”

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