BY COMFORT OGBONNA
Fuel oil traders across Asia are struggling to secure alternative supplies as the ongoing war involving Iran disrupts shipments from key Middle Eastern exporters moving through the vital Strait of Hormuz. The disruption has forced traders to search for replacement cargoes from Western markets as traditional supply routes face severe interruptions.
The tightening supply of Middle Eastern fuel oil is expected to affect the availability of bunker fuel used to power ships. As a result, prices at major refueling hubs such as Singapore—the world’s largest maritime bunkering center—are expected to climb further in the coming weeks. Rising bunker fuel costs will ultimately push up shipping expenses for vessel operators, and those additional costs could be passed on to companies transporting goods around the world.
Concerns over supply shortages triggered a sharp rally in global fuel oil markets this week, particularly for high-sulphur fuel oil (HSFO), which is commonly produced and exported by Middle Eastern refineries. Traders say the region accounts for a large share of the global HSFO supply, making the market particularly sensitive to disruptions.
Data from energy analytics firm Kpler shows that fuel oil exports moving through the Strait of Hormuz toward Asian markets typically average about 1.2 million metric tons per month, equivalent to roughly 246,000 barrels per day. Around 70% of those shipments normally end up in Southeast Asia.
Overall fuel oil exports passing through the strait generally reach about 3.7 million metric tons per month. However, tanker traffic through the waterway has dropped dramatically since the conflict escalated. Vessel tracking data indicates tanker transits have fallen by roughly 90% compared with levels recorded the previous week.
Analysts say such a dramatic decline in shipping activity could quickly tighten global supply balances. Because the global high-sulphur fuel oil market depends heavily on shipments from the Middle East, even partial disruptions at a critical chokepoint like the Strait of Hormuz can cause sudden price spikes and increase volatility in the bunker fuel market.
In response to the shortage, traders are exploring alternative supply sources in Western markets. Potential exporters include the United States and Mexico, though traders say the volumes available from those countries are not enough to fully replace lost Middle Eastern cargoes.
Another possible source is Venezuela, which produces significant quantities of heavy fuel oil. However, most Venezuelan shipments have remained in Western markets so far this year and have not yet been redirected to Asia.
Russian supply could also help fill part of the gap, but fuel oil from Russia remains politically sensitive for some buyers because of international sanctions linked to the war in Ukraine. Many trading companies and shipping firms continue to avoid Russian energy cargoes due to financial and legal restrictions.
Fuel oil exports from Iran itself are also constrained by long-standing sanctions, though shipments have continued to reach buyers in China in recent years. Those flows have now largely stopped as the conflict escalates and maritime activity in the Gulf slows.
Market analysts say any reduction in Iranian high-sulphur fuel oil supply could push China’s independent asphalt producers to increase purchases of straight-run fuel oil from Russia. That shift would reduce the amount of fuel available for traders in the Singapore Strait and further tighten the regional bunker market.
Some traders are also exploring supplies from Asian refineries, but that option may be limited. Refiners across the region are expected to reduce production as crude oil shortages linked to the Middle East conflict begin to affect refinery operations.
The market for low-sulphur fuel oil (LSFO) has experienced smaller price increases compared with high-sulphur fuel. Supplies of LSFO are still arriving from producers in Brazil and Nigeria, providing some relief to the market. However, shipments from Kuwait—particularly from the large Al‑Zour Refinery—have been disrupted as tensions rise in the Persian Gulf.
High-sulphur bunker fuel prices delivered in Singapore have surged more than 40% since the conflict began, while prices for low-sulphur fuel oil have climbed over 30%. Traders say the cost of securing new cargoes is also rising rapidly as tanker freight rates surge.
Shipping costs have become so high that the arbitrage trade route sending Western fuel oil to Singapore is currently uneconomical. As a result, many traders say securing supply for the second half of March has become increasingly difficult.
For now, the market is being partially supported by large fuel inventories already stored onshore in Singapore as well as volumes held in floating storage aboard ships. However, analysts warn that these reserves are likely to decline sharply in the coming weeks if tanker traffic through the Strait of Hormuz does not recover.
If disruptions continue, the tightening fuel oil market could have broader consequences for global trade. Higher bunker fuel prices would increase shipping costs worldwide, raising the cost of transporting goods and potentially contributing to higher prices for consumers across many industries.