The Iran war has disrupted the supply of bunker fuel, a heavy “bottom of the barrel” product that ship operators rely on to keep vessels running, and industry analysts say the impact is showing up first in Asia. The disruption stems from the war’s closure of the Strait of Hormuz, which reduces access to the fuel supply used by the global maritime industry and its largest Asian refueling hub, Singapore.
Bunker fuel is used to move a large share of globally traded goods by sea, and experts say that a shortage of the fuel can quickly become a cost problem for shipping companies. They warn that higher shipping costs can spread through supply chains and contribute to higher prices for consumers across a range of sectors.
Singapore has been one of the key places where the squeeze is visible. The AP reported that bunker fuel prices in Singapore have surged since early May, as reserves thin and supply becomes harder to secure, even as some stocks have so far “held up.” Analysts at commodity and energy-information firms said the longer the cutoff continues for the heavier crude oil needed to produce bunker fuel—such as from Iraq and Kuwait—the more likely shortages become.
The shipping industry’s cost burden is already being absorbed by operators, but analysts told the AP that the costs may eventually pass to customers. Oliver Miloschewsky, a risk consultant with Aon, said bunker fuel shortages tend to move into shipping costs more quickly than many other cost pressures, and he warned that the accumulated effect can ripple across supply chains.
Individual price changes can look small at the level of a single product, but those changes can add up across freight movements and then show through in consumer pricing. The AP also said that Singaporean consumers have started feeling the squeeze through other channels, including local ferries increasing fares and luxury cruise liners adding fuel surcharges.
To cope with the energy shock, some shippers and carriers are taking short-term steps to use less fuel. The AP reported that carriers can pay more for bunker fuel or implement fuel-saving measures such as slowing ships or suspending voyages. Industry data cited by the AP from Clarksons Research said the average speed of bulk carriers and container ships has slowed globally by around 2% since the war began Feb. 28.
At the same time, the squeeze is increasing attention on “green” and alternative fuels and on new ship designs that can handle different energy inputs. Håkan Agnevall of Wartsila, a marine and energy technology manufacturer, told the AP that technology to create lower-emitting fuels already exists, but production is not yet at scale and greener fuels are often more expensive. He said rising fossil fuel prices are narrowing the gap that has limited adoption of greener options.
Some industry executives are also discussing dual-fuel capability—ships designed to operate on conventional bunker fuel while also being able to use alternatives such as liquefied natural gas. Angad Banga, CEO of Fleet Management Limited, part of the Caravel Group, told the AP the firm oversees more than 120 shipbuilding projects and that about a third of the ships under construction for the company’s management are expected to be dual-fuel capable. Banga said owners are willing to pay a premium for that flexibility because, in a volatile environment, optionality has measurable economic value, while noting that alternative-fuel infrastructure remains a limiting factor.
Shipping executives said that even with fewer immediate “bottlenecks” for bunker fuel than for alternatives, constraints on bunker supplies are motivating additional orders and planning for ships that can switch fuels. Banga said that while more than 890 LNG-fueled vessels are in operation globally, supporting infrastructure can create bottlenecks, and he said the industry is adapting as limits on bunker fuel drive more interest in LNG-capable ships.