Middle East oil producers face margin pressure as Asian refiners curb buying

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Middle East oil margin pressure

Highlights

Middle Eastern crude exports rose to 15.4 million bpd in September, nearly 90% of pre-war levels, but rising freight and insurance costs erode Asian refining margins.
Shipping and insurance now consume up to 30% of delivered crude costs for Asian refiners, with freight costs around $33 per barrel absorbing 82% of gross margin.
Middle East exporters are offering discounts up to $30 per barrel to offset logistics costs, but persistent tanker attacks threaten the region's fragile export recovery.

Freight surge undermines crude export recovery

As reported by Reuters, crude exports from the Middle East have recovered in recent weeks, but sharply higher transport and insurance costs are preventing that rebound from translating into stronger refining economics in Asia.

Total Middle Eastern crude exports, including volumes moved through routes bypassing the Strait of Hormuz, rise to 15.4 million barrels per day in September, nearly 90% of pre-war levels, according to Kpler data. Flows through Hormuz climb to 10.7 million bpd in September, about three-quarters of pre-war levels, as Gulf producers increase tanker transits under U.S. Navy supervision.

Asian crude imports are also recovering and are set to reach 23.5 million bpd in October, their highest level since February and slightly above the 2025 average. Middle Eastern barrels account for about 10 million bpd of that total, according to Kpler.

The broader energy crunch is now centred less on crude availability than on refined fuels. Global refining throughput is set to fall by 2.3 million bpd this year to 81.7 million bpd, according to the International Energy Agency, as refinery damage in the Middle East conflict and Ukrainian strikes on Russian plants tighten supply, especially for diesel.

That leaves Asian refiners in a difficult position. Traders say some margins are hovering close to zero even as benchmark fuel prices remain elevated, because freight and insurance now consume a far larger share of delivered crude costs than under normal market conditions.

Discount pressure builds on Gulf exporters

Repeated Iranian attacks on tankers transiting Hormuz are pushing freight rates and insurance premiums sharply higher and forcing traders and producers to use more complex shipping chains, including shuttle movements and ship-to-ship transfers. That logistical strain is tying up tanker availability globally and lifting shipping costs well beyond the Middle East.

For some refiners, shipping and insurance now account for as much as 30% of the delivered cost of crude, according to ROI calculations. Transporting a 2-million-barrel cargo from Nigeria to Singapore now costs around $32 a barrel, roughly eight times its pre-war level, according to LSEG data.

HiLo Analytics data show gross Asian refining margins average around $40 a barrel so far in October, but after average freight costs of roughly $33 a barrel, net margins fall to just over $7. Freight therefore absorbs the equivalent of 82% of gross margin for Asian refiners, compared with about 16% for refiners on the U.S. Gulf Coast and in Northwest Europe.

Asian refiners can respond by cutting processing rates, focusing output on higher-margin fuels such as diesel, or drawing down domestic crude inventories instead of importing expensive replacement barrels. Each option reduces demand for imported crude and increases pressure on Gulf producers that are trying to rebuild export revenue.

Middle Eastern exporters have already cut selling prices to offset logistics costs, with some sellers reportedly offering discounts of as much as $30 a barrel. If attacks on tankers continue and customers seek larger concessions, the region's export recovery risks becoming increasingly fragile.

In our earlier article on the conflict-driven spike in crude oil shipping costs, we explained how tanker freight and insurance surged to become a major component of delivered oil prices as risks in routes like the Strait of Hormuz and the Red Sea escalated. We also noted that the jump in transport costs unevenly affects the market—squeezing importers and Asian refiners while boosting tanker owners’ earnings—and can feed through into higher consumer prices via more expensive fuel logistics.

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