SINGAPORE: Fuel oil traders in Asia are scrambling to secure replacement supplies after shipments from the Middle East plunged amid the Iran war, forcing buyers to search for cargoes from Western markets.

Disruptions to tanker traffic through the Strait of Hormuz, a critical shipping route for energy exports, have sharply curtailed fuel oil flows from key Gulf suppliers, tightening supply across Asia's marine fuel market and pushing prices higher.

The shortage threatens supplies of bunker fuel used to power ships, with prices at major refuelling hubs such as Singapore expected to rise further in the coming weeks. Higher refuelling costs are likely to ripple through global supply chains by raising transport expenses for companies moving goods.

Concerns about tightening supply have already triggered a strong rally in fuel oil markets this week, particularly for high-sulphur fuel oil, a grade commonly exported from Middle Eastern refineries.

Exports of fuel oil moving through the Strait of Hormuz to Asia typically average around 1.2 million metric tons per month, equivalent to roughly 246,000 barrels per day, according to shipping analytics firm Kpler. About 70 percent of that volume normally goes to Southeast Asia.

Total fuel oil shipments passing through the strait generally amount to about 3.7 million tons each month, the data showed.

But tanker movements through the chokepoint have dropped dramatically since the conflict escalated. Kpler's analysis of vessel activity shows tanker transits are now around 90 percent lower than last week.

"When such a large share of the global high-sulphur complex depends on a single chokepoint, even partial transit disruption can tighten balances quickly and amplify bunker volatility," said Sumit Ritolia, lead analyst for refining and supply modelling at Kpler.

Western Supply Hard to Secure

Traders say Asian buyers are now attempting to source cargoes from refineries in Western markets to fill the gap left by Middle Eastern exports.

However, extremely high tanker freight rates have made long-distance shipments uneconomic, complicating efforts to redirect supplies.

"Everyone is struggling to find oil for the second half of March. Tankers are too expensive and arbitrage to Singapore is closed," said a Singapore-based fuel oil trader.

The U.S. Treasury Department is expected to announce measures to contain rising energy prices linked to the Iran conflict.

Potential replacement supplies could come from the United States or Mexico, traders said, though available volumes are limited. Venezuela is another potential supplier, but cargoes from there have remained largely within Western markets so far this year.

"Obviously, there is also Russia, but these barrels remain sensitive for some buyers," another trader said, referring to ongoing sanctions on Russian energy exports following the war in Ukraine.

Iranian fuel oil has also long been subject to sanctions, though China continues to buy it. Those shipments have now also been halted because of the conflict.

If Iranian high-sulphur fuel oil supply declines further, China's independent asphalt producers may turn to Russia for more straight-run fuel oil, reducing the amount available in Singapore's trading hub, consultancy FGE NexantECA said.

Regional Supply also Tightening

Some traders are looking to refiners elsewhere in Asia for additional fuel oil, but supply from those sources may also shrink.

Regional refiners are expected to reduce output due to shortages of crude oil linked to the Middle East conflict, which is already disrupting energy flows through the Gulf.

In the low-sulphur fuel oil market, price increases have been less severe because supply can still arrive from producers such as Brazil and Nigeria.

However, shipments from Kuwait's large Al-Zour refinery have also been halted because of the war in the Gulf.

Traders say replacement cargoes will become increasingly expensive as the market tightens further.

For now, large stockpiles in Singapore, both onshore inventories and cargo stored on ships, are helping the market absorb the disruption.

But traders say those reserves are likely to decline sharply in the coming weeks if Middle Eastern exports remain restricted.