Asia Scrambles for Replacement Barrels as Hormuz Tanker Backlog Begins to Clear

Asia Scrambles for Replacement Barrels as Hormuz Tanker Backlog Begins to Clear Three supertankers carrying 6 million barrels have finally left the Gulf after a two-month wait, but the route and the region remain deeply exposed. Three supertankers carrying 6 million barrels of Middle East crude began transiting the Strait of Hormuz this week after waiting in the Gulf for more than two months, shipping data from LSEG and Kpler showed. The movement offers a narrow signal of relief, but it does not resolve the underlying problem: nearly two months after the U.S.-Iran conflict effectively shut the strait to commercial traffic, there is still no clear timeline for when normal passage resumes.^5,4 The scale of exposure for Asian energy markets is almost without parallel. EIA data show that in 2022 the strait carried an average of 21 million barrels per day, equivalent to about 21% of global petroleum liquids consumption, with roughly 82% of that crude and condensate destined for Asian buyers. The Economist puts the figure even higher for gas: around 90% of LNG that ordinarily passes through Hormuz is bound for Asian markets.^3,9 For individual economies the dependency is acute. The Philippines sources more than 90% of its energy imports from the Middle East. Bangladesh, India and Pakistan receive close to two-thirds of their total LNG supplies via the strait. Petrol prices across South-East Asia have risen 42% since the war began, compared with a global average of 14%, with the Philippines and Myanmar recording increases above 70%, according to The Economist.⁹ Oil producers have some bypass capacity, but not enough. Saudi Aramco's East-West pipeline can move up to 7 million barrels per day after a conversion that temporarily expanded it beyond its 5 million b/d base capacity. The UAE's Fujairah pipeline adds another 1.5 million b/d. EIA estimates total effective unused bypass capacity across these routes at roughly 3.5 million b/d — useful, but a fraction of the 21 million b/d that ordinarily flows through the strait.³ LNG has no comparable workaround. Unlike crude, there is no pipeline alternative for gas leaving the Gulf. A gas analyst told Montel that LNG's reputation for supply flexibility is being tested precisely because a switch to pipeline flows — the backstop available to oil exporters — simply does not exist for liquefied gas. The strait closure has exposed that structural gap in a way that years of flex-LNG marketing never acknowledged.² Facing that reality, Asian buyers have done what buyers do: they have adapted by accepting pain and substitution. Asian countries are burning more coal to cover LNG shortfalls, AP reported, with the continent's reliance on imported fuel through Hormuz making it particularly exposed. Crude buyers are sourcing replacement barrels from West Africa, the United States, Brazil, Guyana and Norway, according to The Economist, while the Dubai crude premium — reflecting the cost of hedging Atlantic crude sales into Asia — has risen sharply.^6,10 Demand destruction has also played a role in keeping markets from worse outcomes. Seb Kennedy, independent energy analyst at Energy Flux, told Montel that demand destruction in Asian countries has helped absorb some of the supply shock. That dynamic provides a ceiling on how far prices can run in the short term, but it also masks underlying fragility: the moment supply routes improve, pent-up demand from storage rebuilding and seasonal consumption could reassert itself.¹ Goldman Sachs data support that reading. Preliminary May figures show Asia LNG imports running approximately 4 million tonnes per annum above the bank's 225 mtpa forecast, driven by China and South Korea as summer demand and storage rebuilding gather pace. "Weak Asia demand has bought Europe time," Goldman said. That buffer is now narrowing.⁷ European traders should not treat that as reassurance. Market participants told Montel this week that Europe is underestimating the risk of a prolonged closure, with rising Asian demand likely to compete directly with EU stock replenishment efforts and drive prices higher. A commodities investment manager told Montel's German Energy Day last month that if the strait stays closed for another year, Europe's price shock turns into a supply crisis.^1,11 The near-term complication is insurance. Iran has officially agreed to reopen the strait for safe passage, but Argus Media reported that maritime traffic remains near standstill due to unprecedented insurance hurdles and new geopolitical demands. Both the U.S.-Iran sides are still using the strait as a bargaining chip, CNBC reported, and there is no clarity on when or how the conflict resolves. Two small Indian LPG shipments totaling 92,700 tons have made it through recently, but supertanker traffic at scale has not resumed.^8,4⁶ The market question for the next few weeks is whether the insurance market finds a workable path — or whether Asian importers continue sourcing replacement barrels at a premium while European storage season heats up. Any sign that underwriters are pulling back further, or that the ceasefire frays, would be the catalyst worth watching.^8,11