Asia's crude oil industry has a good idea of how to end the current crisis created by the Iran conflict. But they also know their wish is unlikely to be granted and they are hunkering down for an extended disruption to supplies from the Middle East.
Across thousands of conversations at this week's APPEC conference in Singapore, the big issue was how to safely and sustainably reopen the Strait of Hormuz.
The answer was remarkably consistent.
U.S. President Donald Trump needs to back down and leave the Gulf region to allow the countries in the region to clean up the mess created when the U.S. and Israel attacked Iran on February 28.
But there was also widespread recognition that such an outcome is unlikely, and that the conflict shows no sign of nearing a political resolution.
Prior to the aerial bombing campaign's start, nearly 20% of global crude oil and refined products, and a similar percentage of global liquefied natural gas, moved through the narrow waterway linking the Persian Gulf with the Gulf of Oman.
Volumes slipped to near zero in the weeks following the start of the conflict as Tehran threatened to attack vessels attempting transit, and while they have recovered somewhat, they are still well short of pre-war levels.
It is a matter of dispute as to exactly how much oil is getting through the Strait of Hormuz and what additional volumes have been re-routed to other ports in the Middle East outside the Gulf.
But even the most optimistic figures are around only 75% of pre-war levels, meaning the global market is down about 5 million barrels per day (bpd) of crude and refined fuels.
What is harder to dispute is figures showing Asia's imports of light and middle distillates are nearly 30%, or about 2 million bpd, below pre-conflict levels, showing that the real crisis is in the supply of refined products.
The oil and gas sector initially was confident the conflict with Iran would be resolved within a matter of weeks, or a few months at worst.
That optimism has evaporated and APPEC delegates, who include Middle East oil producers, trading houses, shippers and refiners, now talk of how to navigate a prolonged disruption.
The view is that the conflict will be resolved with a political agreement, but this is unlikely as it has morphed into a war of egos.
Trump is viewed as being unable to accept anything less than something he can claim as a victory, and much the same applies to the hardline leaders in Tehran, who want to continue to exert influence over the Strait of Hormuz and get billions of dollars to rebuild damage from the bombings.
As one delegate put it in conversation: "We need a political settlement, but that will take regime change in Washington or Tehran." Asked the follow-up question of where this change is more likely to occur, and the answer was Washington, a commonly held view at APPEC.
This could take two-and-a-half more years until Trump's term ends, although pressure on him could be increased if the Democrats are successful in taking back one or both houses of Congress in the November midterm elections.
Least-Worst is Now Best Hope
In the meantime, the best the oil industry is hoping for is what could be described as the least-worst situation.
This involves still constrained and risky flows of crude and products through the strait, with disruptions caused by occasional flare-ups in missile and drone attacks.
In this scenario, Asia's refiners can likely get enough crude, although the loss of refining capacity from the Middle East and from Russia, due to Ukrainian attacks, keeps product premiums at extremely high levels.
The market also focuses less on the price of oil as reflected by Brent futures LCOc1, and more on how big are the discounts for barrels inside the Strait of Hormuz and how high are the premiums for barrels outside that can move freely.
It is possible to entice a trader to try and load crude inside the Strait of Hormuz, but the discount has to be big enough to cover the jump in insurance from around 5 U.S. cents a barrel pre-conflict to around $2.50 currently, and the freight cost of around $30 a barrel, up from around $6, to move cargoes from the Gulf to North Asia.
However, the sharp rise in insurance and freight costs means that the headline crude price, as reflected by Brent, is well below the actual cost of securing cargoes.
What the industry didn't want to talk about at APPEC were worst-case scenarios such as the widespread destruction of energy and civilian infrastructure across the Gulf.
In that sense they were optimistic as they still don't believe this will happen. But then again, six months ago they all thought the war would be over soon.
(Reuters - Editing by Lincoln Feast)
Facts Only
* Asia's crude oil industry understands the current crisis from the Iran conflict.
* Discussions centered on safely and sustainably reopening the Strait of Hormuz.
* One view suggested U.S. President Donald Trump should withdraw to allow regional countries to manage the situation following the attacks on Iran on February 28.
* Pre-conflict, nearly 20% of global crude oil and refined products, and a similar percentage of liquefied natural gas, moved through the Strait of Hormuz.
* Volumes slipped to near zero in the weeks following the conflict due to threats from Tehran against vessels.
* Optimistic figures show only about 75% of pre-war levels for flow through the Strait of Hormuz.
* The global market is down approximately 5 million barrels per day (bpd) of crude and refined fuels.
* Asian imports of light and middle distillates are nearly 30%, or about 2 million bpd, below pre-conflict levels.
* The oil and gas sector initially expected a quick resolution to the conflict.
* The industry now discusses navigating prolonged disruption.
* A potential settlement requires regime change in Washington or Tehran.
* The least-worst hope is constrained and risky flows with occasional disruptions from missile/drone attacks.
Executive Summary
The oil industry in Asia understands the situation created by the Iran conflict but anticipates an extended supply disruption from the Middle East. Discussions at a recent conference focused on how to safely and sustainably reopen the Strait of Hormuz. There was a consensus that U.S. President Donald Trump needed to step back to allow regional countries to manage the aftermath of the attacks on Iran. However, this outcome is considered unlikely as no political resolution appears imminent, given the conflict's current trajectory, which seems driven by ego rather than negotiation.
Pre-conflict, nearly 20% of global crude oil and refined products moved through the Strait of Hormuz. Following the conflict, volumes dropped significantly, though some recovery has occurred. Figures suggest only about 75% of pre-war levels remain for flow through the strait, resulting in a global market decrease of approximately 5 million barrels per day (bpd) of crude and refined fuels. A more significant concern is the supply of refined products, as Asian imports of light and middle distillates are nearly 30%, or about 2 million bpd, below pre-conflict levels.
The industry's initial confidence in a short resolution has vanished, shifting focus to managing prolonged disruption. The outlook suggests a political agreement for resolution is improbable, pointing toward potential regime change in Washington or Tehran as the only pathway forward. In the interim, the preferred scenario involves navigating constrained flows with risks from missile and drone attacks, focusing market attention less on the spot price of oil and more on risk premiums associated with movement through and outside the Strait.
Full Take
The narrative shifts from immediate crisis management to long-term political stalemate, revealing a pattern where technical supply issues are subsumed by geopolitical deadlock. The core tension lies between the practical reality of market constraints (75% pre-war flow) and the intractable nature of the political drivers (ego-driven conflict). The prediction that a political settlement will require regime change in Washington or Tehran establishes a high barrier for resolution, suggesting that supply stability is secondary to power dynamics.
The focus on the "least-worst situation" reveals an embedded risk aversion within the market, where tangible, verifiable losses related to physical flow (insurance premiums and freight costs) become more salient than abstract price movements. This implies that uncertainty manifests not just as a price variable, but as operational friction—the cost of insuring and moving barrels through choke points like the Strait of Hormuz. The industry's optimism against widespread infrastructure destruction reflects a gap between perceived geopolitical danger and actual material impact.
The structure suggests an attempt to frame necessary political action (regime change) as the only logical path, effectively setting up an intractable choice. This framing allows the market to stabilize around suboptimal conditions while deferring responsibility for large-scale systemic risk, focusing instead on localized transactional costs. The underlying assumption is that agency resides in a singular political shift, which guides the entire operational calculus of energy trade amidst conflict.
Bridge Questions: If regime change remains the only potential solution, what alternative mechanisms—non-state actors, international legal frameworks, or internal political shifts within the involved nations—could realistically alter the balance of power over the Strait? How can market mechanisms evolve to price in the probability of systemic political failure rather than just short-term flow disruption? What are the long-term consequences for energy security if the "least-worst" scenario persists indefinitely?
Sentinel — Human
The article functions as a high-level synthesis of expert discussion regarding the geopolitical risks to oil transit, framed by industry priorities rather than pure narrative reporting.