How Asian refineries and Australia are sourcing fuel following the Strait of Hormuz blockade
Updated ,first published
The resumption of hostilities between the United States and Iran has reignited fears that the Strait of Hormuz will remain closed for months or even years, blocking the main shipping channel from the Middle East that carries 15 percent of the world’s oil supply.
The war has reshaped global oil trade since the end of February, with Asian refiners and by extension Australia receiving shipments from around the world, including Canada, Brazil, Georgia and even Gabon and Congo in West Africa.
As soon as the strait was closed from February 28, the first day of the war, emergency media reports warned that Australia would run out of gasoline and diesel by May as Asian refineries, which provide most of the country’s fuel, source more than 90 percent of crude from the Middle East.
Now, in the second week of June, Australia’s fuel stocks are larger than ever and warnings about a so-called fuel supply cliff and expected nationwide driving restrictions have faded away.
How Asian refiners defied forecasts and kept fuel flowing to Australia
cash out
The way the region has navigated the biggest global oil shock in history is both a hopeful story for rebalancing global trade and bad news for the poorest in the region, who have disproportionately felt the brunt of the war.
The most positive news for the region is that oil flows from far-flung countries of the world to the giant refineries of Asia.
Manufacturers are trying to fill the gap created by the Middle East blockade and make money from war prices.
The biggest increase in exports to Asia is coming from the United States, where oil companies are cashing in on the war launched by President Donald Trump. The global benchmark for oil averaged around US$70 per barrel before the war and has been above US$95 since then.
Prime Minister Anthony Albanese said on Wednesday that Australia was continuing to increase its diesel and gasoline stocks, but stressed that the resumption of hostilities cast a shadow over Australia’s future.
“In many cases [a ceasefire] “It’s been announced, but of course we have a caveat, which is that it’s uncertain, but that also creates a big challenge,” he said.
Jo Clarke, president of Argus Media Australia, said Asian refineries turned to new markets in the weeks after the start of the war, with the biggest increase coming from the United States, while Japan and Korea also reduced significant amounts of oil stocks.
“Korea and Japan, as well as Singapore and Taiwan, are locking in crude from the Atlantic basin, from the US, Canada and Latin America,” said Clarke.
“They were getting their crude through their supply chain just in time, but we are seeing bookings for cargo through the end of the year.”
Small oil producers are also scrambling to grab a share of wartime profits, and recently oil shipments have been arriving in Asia from countries as diverse as Canada, Mexico, Colombia, Gabon, Turkey, Egypt, Georgia, Brunei, Venezuela and Brazil.
The oil supply chain has stepped into a breach on the supply side, with producers around the world taking all measures to increase production rates and reopen mothballed plants; Refineries, on the other hand, scoured the world for new contracts.
“They proved to be much more adaptable than people thought and were able to obtain crude oil from other parts of the world,” said Clarke.
Another new trend in diesel supply started with Australia receiving constant shipments of diesel from the USA.
Cost
Another element of global balancing is the lifting of US sanctions on Russian oil flowing freely to India and China.
But while rich countries like Australia continue to fuel their economies by digging deep into their pockets for higher-priced fuel, rising prices have forced poorer countries to cut fuel consumption.
This so-called demand destruction forced industries such as transportation and manufacturing in some poor countries to slow down or close operations, unleashing an economic downturn caused by high fuel prices.
Import-dependent countries, including Thailand, the Philippines, Sri Lanka, Bangladesh, Myanmar, Laos, Vietnam and Cambodia, were affected by major fuel price increases, which increased commodity prices in their supply chains.
There are reports that more than 50 percent of Thailand’s massive fishing fleet has been stranded. Driving restrictions exist in many countries in Southeast Asia.
Many farmers in the region leave their rice crops in the ground due to the cost of fuel required to harvest.
Closing the Strait of Hormuz also cut off global fertilizer supplies, increasing pressure on food production. All currencies are being devalued.
About 60 percent of the liquefied petroleum gas (LPG) used in India’s home cooking came from the Strait of Hormuz. Restaurants are now closing and households are turning to alternatives such as wood, kerosene and coal wherever possible.
Future
The future remains uncertain. Market analysts expect the price of oil to rise well above US$100 per barrel if shipments from the Middle East are restricted for months, and warn that prices could be set at US$150 to US$200 per barrel next year if the blockade is not resolved.
But there is some hope for Australia amid the economic carnage.
Renewable energy and batteries differentiate Australia’s energy prices from volatile global markets and help protect consumers from the severe electricity bill shocks occurring in other countries.
Clarke said Australia would be able to secure sufficient fuel in the coming months due to the ongoing loss of demand in poorer countries and our ability to absorb higher fuel costs.
“We’re seeing a lot of loss of demand outside of Australia. There are a lot of people in Southeast Asia who aren’t driving or burning fuel,” he said.
“Australia, Japan, Korea and richer countries have the ability to pay more and lock in fuel supplies. This means they don’t face a supply gap, but they do face higher fuel costs.”
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Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.Connect via email.
