Asian refiners are facing a growing squeeze as soaring shipping and insurance costs erode profits, threatening to undermine the recovery in Middle Eastern oil exports. Despite a rebound in crude shipments, Gulf producers may have to offer deeper discounts to keep Asian buyers interested, cutting into revenues already weakened by months of conflict.
The disruption highlights a major shift in the global energy crisis. While crude supplies are gradually recovering, shortages of refined fuels, including diesel, are intensifying as refinery damage and transport bottlenecks constrain production and distribution.
According to the International Energy Agency (IEA), global refining throughput is expected to fall by 2.3 million barrels per day this year to 81.7 million barrels per day. Damage to refineries across the Middle East and Ukrainian strikes on Russian energy infrastructure have further tightened fuel supplies. Diesel has been particularly affected, with prices reaching record highs last month.
Why Is Asia Bearing the Brunt of the Energy Crisis?
Asia remains especially exposed to disruptions in the Strait of Hormuz because the region has historically sourced around 60% of its oil supplies from the Middle East. Following the outbreak of war, many Asian refiners reduced operations and sought alternative crude supplies from the United States and South America, increasing transportation expenses.
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Meanwhile, refiners in the United States and Europe have benefited from stronger refining margins and increased operating rates. This divergence has left Asian refiners struggling to compete despite persistent global demand for refined fuels.
The recent recovery in Middle Eastern exports initially appeared to offer some relief. Data from Kpler show that total Middle Eastern crude exports, including shipments through routes that bypass Hormuz, reached 15.4 million barrels per day in September, nearly 90% of pre-war levels.
Oil flows through the Strait of Hormuz also recovered to 10.7 million barrels per day, around three-quarters of their pre-war volume, as Gulf producers increased tanker movements under US Navy supervision.
Asian crude imports are expected to reach 23.5 million barrels per day in October, their highest level since February. Middle Eastern supplies account for approximately 10 million barrels per day of that total.
However, the recovery in physical supplies has not translated into stronger profitability. For some Asian refiners, margins have approached zero as the cost of transporting crude increasingly offsets the benefits of higher availability.
How Shipping Costs Are Undermining Refining Profits
Transportation has become one of the biggest obstacles to restoring normal energy trade. Crude oil typically accounts for around 80% of a refinery’s operating costs, while freight and insurance historically represented approximately 3% to 7% of the delivered price of a barrel.
That balance has changed dramatically.
Repeated Iranian attacks on tankers transiting the Strait of Hormuz have driven up freight rates and insurance premiums. Traders and producers have also developed complicated shipping arrangements involving multiple tankers and transfers between vessels to move oil out of the Gulf.
These arrangements require additional tanker capacity, reducing the number of vessels available for other routes and pushing transportation costs higher across global markets.
According to calculations cited in the original report, shipping and insurance can now account for as much as 30% of the delivered cost of crude for some refiners.
Asian buyers are particularly vulnerable because alternative supplies from the Atlantic Basin require longer journeys. Transporting a two-million-barrel cargo from Nigeria to Singapore now costs approximately $32 per barrel, around eight times the pre-war level, according to LSEG data.
The effect on refining profitability is substantial. HiLo Analytics data show that gross Asian refining margins averaged around $40 per barrel in early October. After accounting for average freight costs of approximately $33 per barrel, refiners were left with just over $7 per barrel.
Freight therefore consumed the equivalent of around 82% of gross refining margins. By comparison, transportation costs accounted for approximately 16% of margins for refiners on the US Gulf Coast and in Northwest Europe.
This imbalance helps explain why recovering crude supplies have failed to deliver a meaningful improvement for Asian refiners. Access to oil is no longer the only concern; the cost of getting it to refineries has become equally important.
Why Gulf Producers Could Lose Out
The pressure on Asian refiners is also creating problems for Middle Eastern oil exporters. Gulf producers are seeking to maximise shipments and rebuild revenues lost during months of conflict, but their customers have less incentive to purchase crude when transportation costs make imports financially unattractive.
Asian refiners have several options for protecting their margins. They can reduce overall processing rates, prioritise production of more profitable fuels such as diesel, or draw down domestic crude inventories instead of importing expensive replacement supplies.
Each option could reduce demand for imported Middle Eastern oil.
Producers in the Gulf have already responded by lowering selling prices to compensate buyers for rising logistics costs. Some sellers have reportedly offered discounts of up to $30 per barrel.
If transportation expenses continue to rise, these discounts could deepen further. That would leave exporters facing a difficult choice between accepting lower prices and risking weaker demand from some of their most important customers.
The problem is particularly acute because the shipping disruption shows little sign of easing. Iranian attacks on tankers crossing Hormuz have intensified, with the weekly tally reaching its highest level since the conflict began, according to the report.
What Happens Next?
The outlook for global energy markets will depend not only on the volume of oil moving through the Strait of Hormuz but also on whether shipping costs and insurance premiums begin to moderate.
If freight expenses remain elevated, Asian refiners could continue cutting production or shifting toward alternative supply arrangements. Either response would weaken demand for Gulf crude and place additional pressure on Middle Eastern exporters to offer competitive prices.
The consequences could extend beyond the immediate conflict. Persistently high transportation costs could prolong shortages of refined fuels, sustain pressure on diesel prices and widen the gap between refining profitability in Asia and other major markets.
For Gulf producers, recovering export volumes alone may not be enough to restore lost revenues. If every additional barrel costs substantially more to deliver, the apparent rebound in oil trade could conceal a much weaker financial recovery.
The central challenge is therefore no longer simply getting crude out of the Middle East. It is making those shipments commercially viable for the buyers who need them most.
With information from Reuters.
