The conflict between the United States and Iran has had a devastating effect on shipping through the Strait of Hormuz, transforming the global base oil market, exposing the industry’s heavy dependence on Middle Eastern supply, particularly for Group III base oils.
Few in the industry anticipated the scale or duration of the disruption, with an initially oversupplied market quickly turning into one of shortages, supply uncertainty and unprecedented price increases. While crude oil prices have since eased, base oil markets, especially Group III, remain driven by physical supply constraints rather than feedstock costs.
The crisis has affected regions differently. Europe is facing acute shortages of Group III after losing cargoes from Bahrain, the United Arab Emirates and Qatar, leaving buyers prioritizing availability over price and forcing blenders to search globally for replacement supply. North America has been relatively insulated by domestic production but is beginning to feel upward price pressure as Europe imports more U.S. material. Asia experienced the earliest shock because of its reliance on Middle Eastern crude, but exports from India and China have helped restore availability. Instead, the region is now grappling with demand destruction as lubricant buyers resist historically high prices, causing Group I and Group II markets to soften even as Group III remains tight.