The Iran war is triggering fears of a global shipping crunch as disruption in the Strait of Hormuz squeezes supplies of the bunker fuel that powers much of the world’s maritime trade.
Ship operators rely on a heavy, sludge-like fuel known as bunker fuel to keep vessels running. The Iran war and the closure of the Strait of Hormuz have disrupted supplies of the fuel that powers much of the global shipping industry and supports Asia’s largest refuelling hub.
Bunker fuel is a low-grade petroleum product, heavier and more polluting than the refined fuels used by cars and aircraft. It forms at the bottom of crude oil storage containers during the refining process.
Despite its poor quality, bunker fuel powers ships responsible for transporting around 80% of globally traded goods by sea. Experts warn that shortages could drive up shipping costs, raise consumer prices and affect businesses worldwide.
The impact is expected to be felt first in Asia, which depends heavily on Middle Eastern oil supplies. In Singapore, the world’s largest bunker fuel refuelling hub, reserves are tightening while prices continue to rise.
Shipping companies are attempting to adapt by slowing vessels and revising schedules to reduce fuel consumption in the short term. Some are also investing in ships capable of using alternative fuels.
However, some firms may struggle to withstand the pressure for long, according to Henning Gloystein of consultancy firm Eurasia Group, who warned that the effects would extend beyond Asia through global supply chains.
Southeast Asia turns to ‘energy triage’
Asia, which was hit first and hardest by the energy shock, has adopted various forms of “energy triage ” to cope, increasing its use of coal, buying more crude oil from Russia and reviving plans to develop nuclear power.
But Asia is bracing for further impacts as energy reserves dwindle and government subsidies dry up.
United Nations data shows that more than half of global seaborne trade passed through Asian ports in 2024, meaning disruption in the region is likely to have wider international consequences.
Singapore’s bunker fuel supplies have so far remained stable, despite rapidly rising prices.
But the prolonged cutoff from major sources of the heavier crude oil needed for bunker fuel, like Iraq and Kuwait, will cause shortages, said Natalia Katona of the commodity site OilPrice.
“We just see the price in Singapore going up, up, up,” Katona said.
Before the conflict, bunker fuel in Singapore cost about $500 per metric tonne. By early May, prices had climbed to more than $800 per metric tonne.
Fuel shortages drive consumer costs
June Goh, an oil analyst at Sparta Commodities, said shipping firms were currently absorbing most of the higher costs, but warned they could soon “pass on to the customers.”
According to the European Federation for Transport and Environment, the Iran war is costing the global shipping industry around €340 million per day.
Oliver Miloschewsky of risk consultancy Aon said that shortages in bunker fuel typically affect shipping prices relatively quickly.
He added that while the effect on individual products may appear limited, the combined impact of higher shipping costs “can ripple across supply chains and ultimately influence consumer prices across a broad range of sectors.”
Consumers in Singapore are also seeing higher transport costs, with ferry operators raising fares and cruise companies adding fuel surcharges.
Ship operators face limited options
Shippers have limited choices to deal with the situation, Miloschewsky said. They can pay more for fuel or implement fuel-saving measures like slowing shipping or suspending voyages.
The average speed of bulk carriers and container ships has slowed globally by around 2% since the war began on Feb. 28, industry group Clarksons Research reported.
High prices are also driving more interest in green fuels, said Håkan Agnevall of marine and energy technology manufacturer Wartsila.
The good news is that the technology to create lower-emitting fuels exists, he said. The bad news is production isn’t yet at scale, and greener fuels are often more expensive.
Agnevall said the current conflict could encourage governments and companies to renew interest in greener alternatives, adding that higher fossil fuel prices were making greener alternatives more commercially viable.
The Caravel Group, which owns ship management company Fleet Management Limited, oversees more than 120 shipbuilding projects.
Its chief executive, Angad Banga, told the Associated Press that around one-third of the vessels currently under construction for the company would be “dual fuel capable”, meaning they could operate using both bunker fuel and alternatives such as liquified natural gas (LNG).
He said ship owners were prepared to pay more for vessels capable of switching between fuel types because “in a volatile environment, optionality has a measurable economic value.”
Banga said alternative fuel systems still lacked the flexibility and infrastructure available for conventional bunker fuel. Although more than 890 LNG-powered vessels are currently operating worldwide, limited infrastructure has created bottlenecks.
However, he said the industry was gradually adapting and that restrictions on bunker fuel were increasing interest in LNG-capable ships. Referring to the shift, he added: “That progress is real.”
