Asian refineries reduce production as their crude supplies decline economy

The British newspaper “Financial Times” reported that oil refineries in Asia reduced their production of petroleum derivatives, including jet fuel, as a result of the decline in the crude oil they received from the Middle East since the outbreak of the war on Iran.

The newspaper added that refineries in Singapore, a major regional center for gasoline and jet fuel, are operating at less than half of their usual production capacity, which is their lowest level of production since the Covid-19 pandemic, according to what the newspaper quoted from Wood Mackenzie, a financial consulting company.

The war led to a decrease in the total production of oil refineries in Asia to about 70% of their production capacity during last March and this April, while they were operating at a rate of 82% to 84% of their capacity before the war, according to Wood Mackenzie figures.

Aviation fuel crisis

The crisis appears clear with regard to the refineries’ production of diesel and jet fuel, which has led to a significant increase in the cost of flights, according to what the newspaper quoted a businessman in this sector, who resides in Singapore, especially for airlines in Australia and New Zealand.

The Financial Times indicated that Asian jet fuel exports fell this week to their lowest level in 5 years, reaching 440,000 barrels per day, a 30% decrease from their pre-war level, according to data from Futrex, a market data company.

She explained that the decline in refinery production in Asia, which contributes about 38% of global production, threatens to exacerbate the global shortage of oil derivatives production, especially with the approaching summer travel season.

Pressures on economies

In a related context, a United Nations Development Program report, issued in the middle of this month, indicated that the war on Iran may cost the Asia-Pacific region production losses amounting to $299 billion, equivalent to 0.8% of the region’s gross domestic product.

Economist Amin Sami explains in an interview with Anadolu Agency that the Asian countries affected by the war are due to their geographical proximity to the Strait of Hormuz and the energy and shipping chains.

Sami adds that Asia pays the largest bill of losses because it “links its industrial and commercial growth to energy that passes through the neck of a single bottle,” referring to the Strait of Hormuz.

The economist pointed out that an important part of Asia’s economies is built on a specific model, which is energy import with extensive manufacturing and extensive export, and therefore the rise in oil, gas, and shipping prices not only raises the import bill, but also puts pressure on electricity, transportation, fertilizers, and supply chains, and then the impact spreads to levels of growth and inflation.

He explains that countries such as Japan, South Korea, India, and China differ in the degree of their dependence on this model, but they share the same structural exposure due to the great importance of energy to their economies.

Asia consumes about 24% of the world’s natural gas and 38% of its oil, according to an International Monetary Fund report issued in mid-April.