Oil Jumps More Than 3% as Iran Declares Hormuz Closed — Asian Refiners Face Greater Supply Exposure

Brent crude rose 3.2% to $78.46 per barrel and WTI climbed 3.4% to $73.83 in Asian trading on Monday, extending weekly gains of more than 4%, after Iran expanded strikes to Qatar and the UAE and declared the Strait of Hormuz closed following an attack on a commercial vessel. The United States disputed the claim, although shipping activity slowed noticeably over the weekend.

Why Asia faces greater supply exposure: According to Kpler shipping data, around 84% of crude oil and condensate transported through the Strait of Hormuz is destined for Asian markets. During earlier periods of disruption this year, combined crude imports into China, Japan, South Korea and India fell by more than 7 million barrels per day from pre-crisis levels, according to IEA data, prompting refiners to source alternative supplies, including crude from West Africa, the United States and Russia.

Supply-chain considerations: Most Gulf crude is medium-to-heavy sour crude, while many alternative supplies are lighter and sweeter. This difference in crude quality can increase refining complexity and processing costs even when supply volumes are replaced. Existing bypass pipelines, including Saudi Arabia's East-West Pipeline and the UAE's Abu Dhabi pipeline, provide only limited capacity relative to typical Hormuz transit volumes, reducing their ability to fully offset a prolonged disruption.

Regional exposure differs:

1. China: The largest importer, with substantial strategic and commercial reserves. Some refiners have reportedly brought forward maintenance schedules as a precaution.
2. Japan and South Korea: Depend heavily on Gulf crude imports, with relatively limited alternative sourcing options.
3. Smaller Southeast Asian importers, including the Philippines and Vietnam: Generally maintain smaller reserve buffers and have less flexibility in spot crude procurement.

Key developments to monitor: Market participants are closely watching whether major producers announce coordinated production increases or whether IEA members discuss potential strategic reserve releases. Refining margins and product crack spreads also remain widely monitored indicators of refining market conditions during periods of supply disruption.

Sources: Reuters, IEA, Kpler