Queues, Price Hikes and Shortages as Asia Battles Fuel Crunch

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India — which imports the lion’s share of its oil and relies on the Strait of Hormuz for nearly half of those shipments — is among the most impacted economies. It had been paring down purchases of Russian oil under US pressure, turning instead to the Middle East, only to this past week find its oil stuck, costs rising and its currency falling.

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“It is a highly fluid situation, but risks to India’s economy cannot be downplayed,” said Dhiraj Nim, an economist with ANZ Banking Group Ltd. 

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The US has offered some unexpected reprieve in the shape of a waiver that allows India to buy Russian oil for 30 days, a departure for Washington after months of demanding lower shipments from Moscow’s producers. Refiners have rushed to take advantage, snapping up millions of barrels of oil already on the water and within India’s reach — despite high prices.

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“The purchase of Russian oil will come at a premium versus a discount in February, so it is not cheap. But given supply shortage, getting access to crude oil is more important than the purchase price,” said Sonal Varma, an economist with Nomura Holdings Inc.

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Until Friday morning, Indian refiners had been watching the war with growing trepidation. At least one, Mangalore Refinery and Petrochemicals Ltd., was forced to suspend product exports and to shut a crude processing unit due to low stockpiles. The government had been considering contingency plans for days.

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Reliance Industries, which operates the world’s largest refinery complex, set up a monitoring center to watch developments in the Middle East and track opportunities for procurement elsewhere, with senior executives working through the night, according to one person familiar with the situation. The company declined to comment.

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The US concession to India has been widely welcomed, even with fine print. But for many it is at best a partial fix, and one that does not alleviate India’s most immediate crunch points — liquefied natural gas, a key industrial fuel in the region, and liquefied petroleum gas, used for cooking. India is the world’s second-largest LPG buyer and gets more than 90% of its supply from the Middle East.

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In gas, part of the issue for India — and for the rest of Asia — is that the halt to Hormuz traffic hit during a period when LNG supply from the US and Australia was being diverted to the Atlantic to take advantage of better prices, exacerbating already low supplies in Asia. 

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When QatarEnergy declared force majeure on deliveries after an Iranian drone strike, it triggered an avalanche of cancellations — LNG importers left gas distributors waiting, and they in turn deprived downstream customers. Qatar provides 30% of China’s LNG needs, roughly half for India and 99% for Pakistan. 

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“We are back in gas crisis territory,” said Saul Kavonic, an energy analyst at MST Marquee. “This big issue with gas today is all the easy levers to pull to reduce gas demand were already pulled in 2022. There are far fewer redundancy and efficiency gains available to deal with LNG shortages today.”

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Buyers in Asia’s developed countries, which can pass down costs to consumers, have been busy buying shipments for April onward. Taiwan, a global chipmaking hub that depends heavily on seaborne imports, rushed to purchase alternative LNG supply for next month, while South Korea is preparing to do the same. 

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Others are trying to preserve their supply. Some Japanese utilities are halting units at power plants to conserve fuel, while Chinese companies have scrapped plans to re-export shipments overseas.