Iran War Splits Asia’s Diesel Market Into Haves and Have-Nots

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(Bloomberg) — The war in the Middle East has left Asian buyers grappling with a two-speed diesel economy, as poorer states face acute shortfalls, while wealthier nations with large refining industries enjoy sizable buffers.

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

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For richer nations, the curbs have paid off as their domestic supplies remain healthy. Among indicators of relative abundance, commercial diesel inventories in China 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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But for poorer countries such as India — where diesel runs through the backbone of the economy, and most goods are moved by road — there are mounting problems. 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.

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“The situation is quite serious,” Samantaray said by phone on Thursday, adding that he also halted the departure of seven additional trucks as the shortages appeared to be worsening. “When I last spoke to the driver, he said several other trucks are idling on the side of roads.”

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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.

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For the world’s most populous region, that’s feeding into a pick-up in inflation as costs surge for farmers, manufacturers and drivers. In the Philippines — which declared a national energy emergency — 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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‘More Vulnerable’

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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.”

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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.

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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. That push has come as the surge in international crude oil prices lifted the cost of regular diesel far above its crop-based counterpart, a reversal of the usual pattern, traders said.