Global Shipping Threatened by Severe Fuel Shortages Amid Ongoing Wars in Iran and Ukraine

The shipping industry is facing a critical new challenge stemming from the US-Israel war on Iran and Russia’s war on Ukraine: a shortage of heavy fuel oil used by ships and power plants. This constraint adds to existing difficulties in navigating key waterways such as the Strait of Hormuz and threatens to drive up global freight costs, impacting consumers and manufacturers alike.

Most commercial vessels and oil tankers rely on heavy fuel oil, or bunker fuel, produced during crude oil refinement. Other commonly used marine fuels include marine gas oil, marine diesel oil, and very low sulphur fuel oil (VLSFO). However, analysts point to the ongoing conflicts in West Asia and Europe, alongside refiners prioritizing more profitable products, as the main drivers of the shortage.

Data from Kpler shows that Middle East fuel oil exports dropped by 45 percent year on year, averaging 447,000 barrels per day from March to August. Energy Aspects projected a fuel oil market deficit of 218,000 barrels per day in the third quarter, marking its first estimated shortfall since late 2025.

The US-Israel war on Iran has severely disrupted maritime trade through the Strait of Hormuz, where roughly 20 percent of global oil and gas previously passed, while Iranian strikes have targeted Gulf oil facilities. Simultaneously, attacks by Yemen’s Iran-aligned Houthis in the Red Sea and the Bab al-Mandeb Strait have further constrained supply routes.

In Europe, Ukraine’s recent drone attacks on major Russian refineries have also reduced output. Russia, the world’s second-largest exporter of crude oil, saw its fuel oil exports drop to a record low of 591,000 barrels per day in August, down from an average exceeding 860,000 barrels per day in 2025, according to Kpler.

With crude supplies constrained, oil companies are prioritizing higher-value refined products like diesel, petrol, and jet fuel. Market observers note that extreme diesel profitability incentivizes refiners to upgrade heavy oil residues rather than leaving them as bunker fuel. For instance, Nigeria’s Dangote refinery has increased diesel, petrol, and jet fuel exports while reducing fuel oil output.

Asia is expected to bear the brunt of these shortages due to its heavy reliance on Gulf supplies. Singapore, the world's leading bunker hub, imports over half of its nearly one million barrels per day of consumed fuel oil. Consequently, VLSFO prices in Singapore have surged 76 percent since the war on Iran began, reaching just under $825 per metric tonne by September 1, according to ZeroNorth. Fuel oil inventories in Amsterdam-Rotterdam-Antwerp and Fujairah are also sitting about 30 percent below their three-year seasonal averages.