Asian base oil prices have surged to record highs, driven by geopolitical disruption, tightening supply chains and shifting refinery economics, according to market analysts at ICIS. The current environment is unlike recent crises, with Asia leading the price surge while the United States and Europe are following slightly behind. However, they warn that those regions are likely to catch up as global pressures intensify.
At the center of the disruption is the ongoing conflict affecting flows through the Strait of Hormuz, a critical maritime choke point for global energy supplies. Roughly 10% of the world’s oil demand moves through the 21-mile-wide sea lane, and the continued blockade by Iran in retaliation for U.S. and Israeli attacks that started in February has constrained crude availability, as well as refined products.
“The sustained uptrend in crude is being supported by real physical constraints, not just market sentiment,” said Amanda Hay, ICIS’ global base oils lead. Dated Brent crude has climbed to around $130 per barrel, significantly above futures benchmarks, Hay pointed out at a webinar last week.
The duration of the disruption is a key factor shaping the market outlook for crude and base oils.
“Disruption duration is going to set the price regime going forward,” said Michael Connolly, ICIS’ head of base oil and refining analytics. “The shorter the duration, the shorter the recovery, the longer the duration, the longer the recovery.”
Refinery dynamics are amplifying the pressure, particularly due to the strength of diesel markets. Diesel — sometimes referred to as gas oil — has become a highly profitable refinery output, prompting operators to prioritize production over base oils. The diesel crack spread has surged to around $60 per barrel, far above historical norms.
“Diesel is the marginal product in the refining space at the moment,” Connolly said. “So that is where base oils will follow.”
Supply constraints are especially severe in the API Group III base oil segment, where the Hormuz blockade and Iranian drone strikes on base oil plants have removed about 20% of global capacity, according to Lubes’n’Greases data. Damage to key facilities in Qatar, Abu Dhabi and Bahrain are expected to limit output for at least a year.
“This event is sizable enough to significantly shorten the market,” Hay said.
Inventories that initially cushioned the market are now being depleted. Industry sources indicate that global commodity markets typically hold about two months of supply, much of which consisted of cargoes already in transit before the conflict began. As those volumes are absorbed, spot availability has sharply declined and companies are redirecting supplies internally to manage risk. The result is a tightening market with rising prices across all regions and grades.
Regional dynamics further complicate the outlook. Asia remains the most exposed due to its reliance on Middle Eastern crude, while Europe faces acute diesel shortages that are pushing prices higher. The United States, though more self-sufficient in crude, is heavily dependent on imported Group III base oils.
“About half of U.S. imports come from the Middle East, which puts the market in a vulnerable position,” Hay said, warning of potential allocation systems and supply redirection in the coming months.
Looking ahead, analysts outlined scenarios ranging from a moderate recovery by the end of the year to a prolonged disruption extending into next year. In the more severe case, demand destruction of up to 15% could occur as supply shortages intensify. Even under more optimistic assumptions, prices are expected to remain elevated.
“This is more than just a crude story,” Hay emphasized. “We may see early stages of demand destruction. The tightness is coming.”