Russell: The war in Iran has a greater impact on refined fuels than crude oil and importers must act.

Media attention is focused on the loss of up to 20% of crude oil and refined fuels due to the continued closure of the Strait of Hormuz.

The rapid tightening in the markets for refined products in Asia is a greater concern. Major importing countries like Australia and Indonesia could be facing an "emergency" situation with lower supplies and much higher prices.

According to Kpler commodity analysts, Australia is Asia's biggest importer of refined petroleum products. It averages around 900,000. Indonesia comes in second with arrivals of about 600,000.

The largest proportion of Indonesian imports is gasoline, which is used to power the country's mining operations.

This is a problem for both countries and other Asian nations that rely on fuel imports, such as New Zealand and the Philippines. It is causing changes to the markets of products that are pointing to a crisis.

Four sources familiar with the issue say that major refining countries have cut back on exports or reduced production. China, for example, has banned refined fuel exports immediately from 11 March.

China may not be a major refiner of fuel for Asia, but the country has the largest crude oil stockpiles and refining capacities, so it could supply more to the market if they chose to.

The authorities, however, have chosen to prioritize domestic energy security by not using the estimated 1.2 billion barrels held in strategic and commercial stockpiles.

It is a short-term view to assume that fuel-importing countries will somehow be able?to meet the requirements in the coming months.

Some plants, such as those in South Korea and China, are also cutting back on their throughput.

Fuel shortages are likely to increase exponentially if refinery runs and fuel exports are reduced in order to protect energy security at home.

Singapore gasoil - the main ingredient in diesel - ended at $143.88 per barrel on 13th March, up 57% from the U.S. attack on Iran on 28th February. Jet fuel prices jumped 114% to $199.66.

TIME TO RESPOND?

The Australian government has stated that the country is able to meet its fuel needs and that imports will continue as normal.

It has however released some diesel and gas from its reserves to ease the shortage after a rise in retail prices caused consumers to rush to refill their tanks.

Australia has only 30 days worth of fuel, so any interruption in imports can quickly lead to a crisis.

Australia has some leverage. But the question is, will the government be willing to use it to threaten its trading partners to make them export fuels? And if so, will the government do this in a timely manner?

Australia's main fuel suppliers include South Korea, Singapore and India, but also China, Malaysia, Taiwan, and Brunei.

Japan, South Korea, and China are also major buyers of Australian iron ore and coal. Singapore purchases LNG, and India imports coal coking, which is essential for the steel industry due to a lack of supplies locally.

If there is a diesel shortage, Australia would do well to stop iron ore mining, coal mining, and LNG production.

Mining consumes up to 40% of Australia's diesel. If shortages occur, the government will be forced to prioritize diesel for food production.

Imagine that China, who imports about 75% of the iron ore it uses from Australia by sea, were to stop receiving cargoes.

The company may be able get more from its number two supplier, Brazil, but more than likely they would use up their stockpiles in three months. They would then need to reduce steel production.

It would also hurt the key construction and manufacturing industries.

China may be able to survive without Australian coal and LNG from Indonesia, but it is difficult to say the same for Japan or South Korea.

According to Kpler's data, Australia and Indonesia provided over 80% of Japan’s coal in March, as well as half of its LNG.

In March, the two countries that are rich in resources supplied South Korea with 38% of its LNG and almost 60% of coal.

Fuel exporters put themselves in a huge risk by limiting shipments and causing shortages for importers.

It is a question of whether or not governments will act to ensure the regional economies share in the pain caused by U.S. president Donald Trump's Iran war, or if they are going to allow their short-term self-interests to dominate and turn an already bad situation into disaster.

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These are the views of the columnist, an author for.

(source: Reuters)