Iran Conflict Exacerbates Diesel Market Disparities Across Asia

Diesel Shortages Hit Asian Buyers Amid Middle East Conflict

The ongoing war in the Middle East has created a two-speed diesel economy in Asia, with wealthier nations facing smaller shortfalls while poorer states struggle to meet demand. The conflict has crippled shipments of crude and refined products, leading to a surge in diesel prices and a pick-up in inflation across the region.

Diesel, a vital fuel for transportation, agriculture, and industry, has been among the most affected by the conflict. In Asia, refining powerhouses China and South Korea have curbed product exports after processors were forced to cut run rates. This has triggered a drop in fuel flows to regional buyers, with importers such as Indonesia and the Philippines bearing the brunt.

For richer nations, the curbs have paid off as their domestic supplies remain healthy. In China, commercial diesel inventories recently touched the highest level in nearly two years, even as state-owned refineries ran slower, according to data from Mysteel Oilchem.

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However, for poorer countries such as India, where diesel runs through the backbone of the economy, problems are mounting. Truck owner Smruti Ranjan Samantaray said that one of his vehicles headed to pick up a load of iron ore has been stranded by the roadside in the eastern state of Odisha as pumps run dry.

The war between the US and Iran, now in its third month, has forced the near-total closure of the Strait of Hormuz, crippling shipments of crude as well as refined products. Brent futures topped $126 a barrel this week to hit the highest in almost four years, and product prices, including diesel, have soared.

For the world's most populous region, this is feeding into a pick-up in inflation as costs surge for farmers, manufacturers, and drivers. In the Philippines, price gains hit 4.1% in March, the fastest in nearly two years, and the central bank expects they'll go higher still.

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"The impact of the diesel shortage isn't evenly distributed across Asian countries," said Xavier Tang, a senior market analyst at Vortexa Ltd. "Countries in Southeast Asia have limited oil stocks, leaving them more vulnerable to supply disruptions."

Asia typically sources most of its diesel from plants within the region, which in turn rely on flows of crude from the Middle East for a substantial share of their input. With oil supplies from the Persian Gulf down by more than 14 million barrels a day, according to an estimate from Goldman Sachs Group Inc., that's had a knock-on effect in Asia as seaborne diesel exports contract.

In Indonesia, the shortage of diesel has prompted Southeast Asia's largest economy to fast-track the roll-out of a blend comprised 50% of biofuels from its vast oil palm plantations. In Vietnam, industries including steel- and cement-making have been asked by the government to conserve fuel, while Nghi Son Refinery and Petrochemical LLC, a major processor, asked Japan's Idemitsu Kosan Co., which has a stake in Nghi Son, for help in sourcing feedstock.