Asian refiners are in a state of flux as the Iran war threatens to disrupt Middle East oil supplies. The conflict has led to a potential 30% reduction in crude run rates for state-held majors heavily reliant on Middle Eastern oil. This is due to the de facto halt of shipments via the Strait of Hormuz, which is crucial for Asian refiners' key cargo deliveries.
Just before the U.S.-Israel strikes on Iran, Asia, particularly China, had planned to increase crude purchases from the Middle East. However, the Strait of Hormuz is now effectively closed, with companies and shippers diverting vessels or idling in waters near the vital oil and gas shipping lane. This logjam would delay the supply many refiners had planned to receive this month.
As a result, some of the big refiners in China and Japan are considering slashing crude processing rates by 20-30%. The immediate impact of the tanker traffic halt in the Middle East is high for crude oil supply, according to estimates by Kpler. Asian energy security would be affected as India and China are the dominant Asian buyers of Strait-transiting crude.
Refiners typically have at least two weeks of supply to cushion a short-lived disruption, but if the conflict and disarray near the Strait of Hormuz extend for more than three weeks, some Asian refiners could be forced to slash processing rates, especially if they struggle to procure alternative supply quickly. This situation raises questions about the future of Asian energy security and the impact of the Iran war on global oil markets.
