Markets

The escalation of geopolitical conflict between the US, Israel, and Iran expanded dramatically in late Jul. as Yemen's Iran-aligned Houthis declared an immediate maritime blockade on Saudi Arabia.

Asia's heavy dependence on Middle Eastern oil has exposed the region to severe geopolitical risk as the Strait of Hormuz closure and Houthi threats to Bab el-Mandeb disrupt critical supply routes.

China and India, Asia's two largest oil importers, are pursuing fundamentally different strategies in response to the Middle East supply collapse.

Russian crude processing has plunged to 3.91 MM b/d—the lowest since March 2005—after 50 Ukrainian drone strikes hit 24 of 34 refineries in 100 days, forcing Moscow to ban diesel exports and divert record crude volumes abroad.

The US has reimposed its naval blockade on Iranian ports after the June 18 ceasefire collapsed, disabling the tanker Belma with Hellfire missiles on Jul. 15 and redirecting two other vessels.

Iraq secured a one-year deal with Turkey to keep the Ceyhan pipeline operating, preserving more than 200K b/d of northern exports after the Hormuz closure exposed Baghdad's export vulnerability.

Asian oil importers have returned to US crude in force as the Hormuz ceasefire collapsed, with at least 11 MM bbl. of American crude sold to South Korean, Japanese, and Thai refiners on Jul. 14 alone—marking a sharp reversal after weeks of quiet spot trading.

The country slashed crude imports by 41.3% in Jun. to 7.12 MM b/d—the lowest since Oct. 2016—drawing down an estimated 1.2–1.5 B barrel stockpile amassed before the Iran war, effectively capping global oil prices and transforming Beijing from a price taker into a price maker.

In April, US petroleum exports reached an all-time monthly high of 13.6 MM b/d, driven by security disruptions in the Strait of Hormuz during the US-Iran conflict.

Since the outbreak of the US-Iran conflict on Feb. 28, Asian refiners have been forced to radically alter their crude import strategies to survive severe regional supply disruptions.