Global Shipping Fuel Shortage Looms Amid Iran, Ukraine Conflicts
Ongoing conflicts involving Iran and the war in Ukraine have created a significant shortage of heavy fuel used by ships and power plants, Reuters reported. Refiners are prioritizing more profitable products like diesel, leading to reduced supply of marine fuel. Despite moderate increases in crude oil prices, refined product prices have surged due to damage to refineries in the Middle East and Russia, and disruptions in shipping lanes like the Strait of Hormuz and the Red Sea.
The price of very low sulfur fuel oil (VLSFO), a primary marine fuel, has jumped 76% since the start of the "Iranian war" to $130 per barrel in Singapore, according to data from ZeroNorth. This increase significantly outpaces the 40% rise in Brent crude oil prices during the same period, which reached approximately $93 per barrel.
Compounding the issue, China has reduced its refining output and exports to conserve inventory. Russian oil exports plummeted in August to 591,000 barrels per day, down from an average of over 865,000 barrels in 2025, amid Ukrainian drone attacks on its refineries. Exports of ship fuel from the Middle East also fell by 45% compared to last year, averaging 447,000 barrels per day between March and August.
This shrinking supply is expected to increase costs for shipowners and power producers already grappling with war-related disruptions. Higher marine fuel costs will likely translate into increased shipping rates, with Asia anticipated to bear the brunt due to its heavy reliance on Persian Gulf exports. Singapore, a major global bunkering hub, imports over half of its daily demand of nearly one million barrels from the region, according to Kpler.
Energy Aspects estimates a global deficit of 218,000 barrels per day in the third quarter of 2026, the first such deficit since the third quarter of 2025. Rystad Energy issued a similar forecast, with analyst Valeria Panopulo noting that "due to extensive supply disruptions in the Middle East, we estimate that ship fuel supply will remain extremely low in the third quarter."
Marine fuel joins diesel and jet fuel in struggling to meet demand. U.S. diesel prices recently hit a record high amid renewed tensions between the U.S. and Iran. Increased demand is also driven by ships taking longer routes to avoid attacks in the Red Sea, further straining supply.
