Renewed US-Iran Tensions Cloud Middle East LPG Outlook
Hopes for a gradual recovery in Middle East LPG flows into Asia have been dimmed after renewed U.S.-Iran tensions, with market participants saying the latest developments have weakened confidence in a normalization of regional trade following the peace deal in June.
The U.S. on Tuesday reinstated sanctions on Iranian crude oil, petroleum products and petrochemicals in response to Iranian strikes on Hormuz tankers after initially granting a 60-day waiver. On Wednesday, U.S. President Donald Trump declared the peace deal agreement with Iran over.
The CFR Japan propane flat price rose $43.75 per metric ton from the previous session to $635.50/mt on Wednesday as the market priced in renewed geopolitical risks and expectations of tightening Middle East supply.
Early Signs of Recovery Fade
Although shipping risks through the Strait of Hormuz had persisted following the peace deal, traders said confidence had begun to improve as tensions eased, with buyers gradually re-entering the market after largely remaining on the sidelines during the conflict.
In late June, Indian state refiners Bharat Petroleum Corp. and Indian Oil Corp. (IOCL) sought very-large gas carrier tonnage for LPG loadings from Middle East ports including Ras Tanura, Ruwais and Mina Al Ahmadi. IOCL also sought a medium gas carrier on time charter in early July for Middle East LPG loadings between August and October.
Sources also pointed out a pickup in spot activity following the peace agreement. OPIS tracked 11 buy tenders largely for August cargoes as buyers looked to restock cargoes.
“General sentiment across the market was that while nobody was rushing to secure Middle East cargoes, flows would gradually recover. But these renewed tensions have set the market back to square one,” a trader said.
Traders See Limited Impact on Physical Trade
However, some market participants said the latest U.S. policy reversal was unlikely to significantly change physical trade flows, noting that buyers had not fully transitioned back to Middle East cargoes even during the peace deal and temporary sanctions waiver.
Instead, many Asian importers continued sourcing LPG from alternative suppliers, particularly the U.S., as uncertainty surrounding shipping through the Strait of Hormuz remained despite the peace deal.
Vortexa data showed Asia imported a record 5 million mt of U.S. LPG in July, up from 4.22 million mt in June.
Middle East LPG exports to Asia recovered to 1.92 million mt in July from 711,100 mt in June, but remained well below the pre-war average level of around 3.5 million mt, the same data shows
Several market participants also noted that the composition of Middle East LPG exports to Asia remained largely unchanged despite the peace deal and temporary sanction waiver.
Traders said established Iranian LPG exports to China remained the dominant trade flow and continued throughout the conflict through existing trading and shipping arrangements, while shipments to other Asian markets showed little increase.
“The Iran-China LPG trade never really stopped; those cargoes continued moving regardless. This means there wasn’t a new wave of Middle East flowing into the rest of Asia,” an analyst noted.
Vortexa data showed that from March to mid-June during the war, Iranian cargoes accounted for 39.5% of Middle East LPG exports, while China received 48.9% of the region’s exports.
Between mid-June and July after the peace deal, those proportions remained broadly unchanged, with Iran accounting for 38.9% of Middle East exports and China receiving 52.1%.
Looking ahead, market participants expect buying interest to ease as traders once again adopt a wait-and-see approach while monitoring further geopolitical developments.
–Reporting by Cheryl Lee, clee@opisnet.com; Editing by Mei-Hwen Wong, mwong@opisnet.com