The Iran war is throwing a niche corner of the oil market into disarray as fallout from scrambled supply chains for the commodity reaches all the way to the automotive maintenance and industrial sectors.
Energy inflation is rippling through the U.S. economy with the retail price of gasoline and diesel approaching all-time highs, fueling the worst inflation in years. Now, a broad group of industrial lubricants known as base oils are in very short supply with no signs of easing on the horizon.
The Middle East Connection
The U.S. imports about 44% of its supply of what’s known as Group III base oil—the raw material used to make motor oil—from the Middle East, Independent Lubricant Manufacturers Association (ILMA) CEO Holly Alfano said in an interview with Bloomberg.
One of the major suppliers of that industrial oil, Shell Plc.’s Pearl GTL facility in Qatar, was damaged in the March 18 attacks on Ras Laffan Industrial City. The oil giant said it will take about a year to repair portions of the energy complex.
“This is just the beginning,” Alfano said. Shortages are imminent and, by next month, finding adequate supply is going to be a major issue.
A Perfect Storm of Scarcity
A confluence of other war-related issues are also hampering U.S. access to the industrial oil, according to Alfano:
-
South Korea Disruption: Normally a steady supplier of Group III oil to the U.S., South Korea has seen its production and exports disrupted by the conflict.
-
Diesel Priority: U.S. refiners that make base oil have pivoted toward producing diesel—another fuel facing a crunch with U.S. inventories at the lowest level in more than 20 years.
In a March letter to U.S. Energy Secretary Chris Wright, ILMA stated that the supply chain disruption has triggered multiple emergency price increases, forcing producers to pull products from the market or place strict limits on buyers.
The Licensing Hurdle
The American Petroleum Institute has eased some specifications for the oil to help alleviate the crunch. However, for dexos-licensed brands—a specific grade developed by General Motors and required for most of its vehicles—the rules remain rigid.
Manufacturers have not been given broad clearance to replace Group III oils without the risk of having their licensing revoked. Currently, they must seek approval on a case-by-case basis. A spokesperson for General Motors did not immediately respond to a request for comment.
Impact on the Ground
For wholesalers like New York City-based Lubenet, the crisis is already hitting the bottom line. The price of dexos oils has jumped as much as $5 a gallon in recent weeks.
“That’s enormous,” said Michael Rumore, procurement director for Lubenet. “It wasn’t done in increments, it was just, ‘Bam, here it is.’”
The logistical strain is equally severe: the time between ordering dexos-licensed oil and receiving delivery has ballooned from 10 days to at least five weeks.
