Dow Chemical will sue Kuwait for breach of contract after the Middle Eastern state pulled out of a $17.4 billion (£11.9 billion) joint venture with America's biggest chemical company.

Dow could claw back as much as $2.5 billion from the Kuwait's Petrochemical Industries Company (PIC), a state-owned company, according to a filing made by the US company with the Securities and Exchange Commission, America's regulator.

Andrew Liveris, chairman and chief executive of Dow Chemical, said:"Pursuing legal options is not a decision we take lightly, especially because of the longstanding partnerships we've established in Kuwait over the past decade but PIC is in breach of contract."

Dow Chemical has seven operations in the Middle East, five of which are in partnership with local companies.

PIC dropped out of the joint venture just a few days before it was due to go ahead.

Mr Liveris said that the two companies had exchanged more than 1,500 documents in preparation for the new business and was "shocked" by PIC's change of heart. "This was completely unexpected given the approvals already received and the behaviour, actions and words from our partners," Mr Liveris said.

At the time, Kuwait blamed the falling oil price and global financial uncertainty for its reluctance to go ahead with the venture, which would have involved Dow transferring ownership of several basic plastics plants to PIC.

Mr Liveris said that Dow Chemical had since been approached by two other companies interested in taking PIC's part in the joint venture, which had been due to net the chemicals company $7 billion.

"We've already been contacted by other interested parties and have begun discussions," he said.

The collapse of the deal cast doubt over whether Dow Chemical would press ahead with its $15.3 billion acquisition of rival Rohm & Haas, as the cash from the joint venture was to be used to pay part of the acquisition cost.

Dow Chemical must close the deal with Rohm & Haas this Saturday or, under the terms of their agreement, the $78 per share cost will immediately begin to increase.

Mr Liveris declined to say today whether the Rohm & Haas takeover would go ahead or whether he was attempting to renegotiate the terms of the deal.

He told investors that he would continue to pay the regular quarterly dividend, which had also been put in doubt because of the higher anticipated costs of buying Rohm & Haas without the Kuwaiti cash.

Dow has not missed a dividend payment since 1912 and Mr Liveris has previously promised that it would never happen on his watch.

Shares in the company were up 3.9 per cent at $15.65 each at 10.10am.

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