No base oil cargoes are traversing the Strait of Hormuz, which is now firmly closed to merchant shipping after Iran and the U.S. traded fire over the weekend, sending crude prices higher at the opening of Asian trading Monday.
Since the conflict began in February, when the U.S. and Israel launched surprise attacks on Iran and Lebanon, the region’s lubricants industry has been operating at severely reduced levels. Iranian counterstrikes on energy infrastructure around the Gulf also knocked much of the region’s base oil refining capacity offline, including capacity representing around a fifth of global API Group production.
According to one industry insider, ships anchored off Oman and the UAE while waiting to enter the strait have either sailed to alternative ports in India, South Africa and East Africa or discharged at ports including Fujairah and Muscat. Some cargoes have subsequently moved by truck and rail to receivers within the UAE.
“Regional companies have adapted to the disruption,” said Ray Masson, director of base oil trading company Pumacrown and base oil price reporter for Lubes’n’Greases. “Base oil and finished lubricant volumes have fallen sharply, with many blending operations cutting production and some suspending operations altogether.”
Base oils and additives remain difficult to source in sufficient quantities. Some companies have shifted operations to India, South Africa and East Africa, while others have moved activity to Singapore and Thailand. Several have indicated that they may not return to their previous Middle East Gulf locations if the Iran conflict ends.