The ongoing conflict involving Iran has caused a significant disruption in the Strait of Hormuz, leading to a major supply crunch for bunker fuel in Asia. This heavy residual oil, which powers the majority of the world's cargo ships, is now facing severe shortages, raising concerns about higher freight costs, supply chain disruptions, and rising consumer prices globally.
Impact on Bunker Fuel Supply
Bunker fuel is a thick, low-grade petroleum product left over after refining crude oil. It is widely used by the shipping industry due to its relatively lower cost compared to cleaner alternatives. The fuel is critical to global trade, with approximately 80 percent of goods worldwide transported by sea.
The disruption is most acutely felt in Asia, which heavily depends on Middle Eastern crude supplies. Singapore, the world's largest bunkering hub, is experiencing rapidly rising prices and tightening inventories as supplies from key producers such as Iraq and Kuwait remain constrained. Analysts report that bunker fuel prices in Singapore have surged from roughly USD 500 per metric tonne before the conflict to more than USD 800 in recent weeks.
Shipping Industry Response
Shipping firms are responding by cutting vessel speeds, adjusting sailing schedules, and exploring alternative fuels to reduce operating costs. According to shipping research firm Clarksons Research, the average speed of container ships and bulk carriers worldwide has already slowed by about 2 percent since the conflict escalated in late February.
Industry experts warn that the financial pressure will eventually be passed on to consumers through higher transport and logistics costs. Oliver Miloschewsky of risk consultancy firm Aon noted, "Bunker fuel shortages tend to feed through to shipping costs more quickly than many other cost pressures." He added that while the price increase for individual products may appear limited initially, the broader impact could spread across global supply chains and eventually affect retail prices in multiple sectors.
Global Economic Implications
The European Federation for Transport and Environment estimates that the Iran conflict is costing the global shipping industry nearly 340 million euros per day. In Southeast Asia, governments and businesses are increasingly adopting what analysts describe as "energy triage" measures. Countries are boosting coal consumption, increasing imports of Russian crude, and reconsidering nuclear energy projects to offset the pressure from constrained oil supplies.
Shift Towards Alternative Fuels
The shipping sector is also accelerating investments in vessels capable of operating on alternative fuels such as liquefied natural gas (LNG). Håkan Agnevall, chief executive of marine technology company Wärtsilä, said higher fossil fuel prices are improving the economic viability of greener fuels despite existing infrastructure bottlenecks. "That improves the business case for green fuels," he stated.
Angad Banga, CEO of The Caravel Group, revealed that about one-third of the vessels currently under construction under the company's management are designed to run on both conventional bunker fuel and alternatives such as LNG. "In a volatile environment optionality has a measurable economic value," Banga said, referring to shipowners' growing preference for dual-fuel vessels.
However, experts caution that alternative fuel infrastructure remains underdeveloped globally, limiting how quickly the shipping industry can transition away from conventional bunker fuel.
