-- Asia faces a sharp fuel crunch after the US-Iran conflict disrupted about 4.5 million barrels per day of Gulf exports, forcing buyers to chase costly alternative supplies, according to an Argus analysis on Friday.
Asia-Pacific typically exports fuel to Western markets, but the US-Iran conflict has reversed flows, drawing unusual volumes from the West into Asia, according to Argus.
Middle distillates have seen the strongest shift, with arbitrage inflows of jet fuel and gasoil expected to hit a record 231,000 barrels per day in April, largely sourced from Russia, Argus added, citing Kpler data.
This compares with minimal west-of-Suez inflows of 7,000 b/d in 2025 and 15,000 b/d in 2024, highlighting how sharply trade dynamics have flipped amid the disruption, Argus added.
The naphtha market has also drawn nearly 3 million metric tons of arbitrage cargoes, including about 3 mmt loaded from west of Suez, to replace typical monthly supply losses of 3 mmt to 4 mmt from the Strait of Hormuz.
These inflows are still insufficient as Asia consumes about 6 mmt to 7 mmt of naphtha each month, forcing cracker run cuts and prompting several firms to declare force majeure due to ongoing feedstock shortages, Argus said.
Gasoline markets show similar trends, with Asia-Pacific buyers securing about 119,000 b/d of arbitrage cargoes from west of Suez for May arrival, far above historical levels, shipping data from Kpler showed.
That compares with just 8,000 b/d in 2025 and 17,000 b/d in 2024, the report said.
Despite these inflows, product crack spreads have eased as market sentiment softened amid early ceasefire discussions, rather than purely from improved supply conditions, according to the analysis.
Over the week, gasoline margins fell 21% to $23.74 per barrel, gasoil margins dropped 12.9% to $54.56/bbl, and jet fuel margins declined 2.8% to $73.51/bbl, while naphtha cracks slid 32.15% to $212.03 per metric ton.
Europe's summer driving season may intensify competition for cargoes, forcing Asian buyers to widen east-west price spreads to attract shipments away from western markets.
However, arbitrage economics have weakened, with gasoline east-west spreads narrowing to $2.95/bbl on April 15 from $12.15/bbl per barrel on April 1, reducing incentives for flows into Asia.
Gasoil spreads fell to -$76.16/mt on April 15 from $130.91/mt on April 1, while naphtha spreads declined to $67.50/mt from $100.75/mt over the same period, further limiting arbitrage flows.
If the Strait of Hormuz remains closed, refiners may need to process alternative crude or curb demand, as narrow spreads and high freight costs limit viable arbitrage opportunities, Argus added, citing market participants.
Analysts warned that arbitrage flows are only a temporary fix, with insufficient global supply to fully replace Gulf exports, meaning prices must rise further to suppress demand or push refiners to increase output, the analysis said.