Asian refiners are facing a critical decision as the Iran war disrupts Middle East oil supply. The conflict has caused a logjam in the Strait of Hormuz, threatening to delay crucial cargo deliveries for Asian refiners. This situation is particularly concerning for state-held majors heavily reliant on Middle East oil. Before the U.S.-Israel strikes on Iran, Asia, especially China, had planned to increase crude purchases from the Middle East, but the Strait of Hormuz is now effectively closed, with companies and shippers diverting vessels or idling in nearby waters. 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 highlights the delicate balance between energy security and supply disruptions, and it's a critical issue that needs to be addressed.
