Base Oils Disrupted: War-Driven Supply Tightness

The ongoing US‑Iran conflict has turned the Gulf into a bottleneck for base‑oil supply. The closure of the Strait of Hormuz halted shipments from Bahrain, Qatar and the UAE, which together produce roughly 2 million tonnes of Group 3 base oil—about 20% of global capacity. Damage to one of Qatar’s Pearl GTL trains adds another year‑long delay, pushing Group 3 inventories to historic lows and driving spot prices sharply higher in the United States and Europe, where Middle Eastern imports dominate.

In contrast, Asia‑Pacific refiners are beginning to rebalance. With crude allocations secured for May, refineries in South Korea, Taiwan and Thailand are shifting from fuel‑first priorities to base‑oil production, freeing up volumes for export. Smaller lubricant blenders, squeezed by record‑high feedstock premiums, are cutting runs, further increasing available supply. China, however, shows resilience: recent domestic Group 2 capacity expansions and aggressive price cuts have offset import pressures, while rising local grocery‑oil projects reduce reliance on Gulf feedstock. Import‑substitution dynamics are reshaping trade flows, as Chinese traders now find domestic prices competitive enough to halt traditional arbitrage.

Looking ahead, market recovery hinges on the reopening of the Hormuz corridor. Even if shipping resumes, analysts expect a 1‑2‑month lag before Group 3 volumes reach Europe and the US. Meanwhile, buyers across the globe are stockpiling in anticipation of future deliveries, tempering demand growth. Higher base‑oil premiums—about $1,000 per tonne for gas‑oil equivalents—are prompting refiners to boost Group 1 output where diesel supplies are ample. In the longer term, new GTL projects will take years to reach full capacity, suggesting that price normalization will be gradual rather than abrupt.