Due to the ongoing conflict, the global lubricant supply chain has seen a number of disruptions to their day-to-day operations. The Lubricant Expo Middle East team have reached out to our esteemed advisory board to get their take on the current situation and how best to manage it. We are very pleased to present an interview with Nikhil Agarwal the Managing Director at Globestar Energy Fze.
What are the key challenges facing the lubricant supply chain due to the current conflict?
Key challenges facing the lubricant supply chain include:
- Closure of Vital Maritime Corridors: The effective closure of the Strait of Hormuz has halted roughly 20-30% of global oil and LNG trade, causing tankers and container ships to be stranded or rerouted, limiting the ability to transport base oils and finished lubricants out of the Gulf.
- Logistical Bottlenecks and Rerouting: Rerouting vessels around Africa’s Cape of Good Hope adds up to two weeks of transit time and increases fuel consumption, leading to severe delays. Concurrently, regional hubs like Dubai’s Jebel Ali Port are facing extreme congestion, with an estimated 200,000+ TEU of capacity trapped in the Gulf.
- Rising Production and Transport Costs: The disruption has caused sharp spikes in freight rates and war-risk insurance premiums. Elevated oil prices—with Brent crude rising rapidly—increase the cost of raw materials and base oils, leading to tighter margins for manufacturers and distributors.
- Refinery Operations and Infrastructure Damage: Attacks on oil and gas infrastructure in the region, including refineries in Saudi Arabia, Abu Dhabi, Qatar and terminals in the UAE, Oman have reduced the available output of refined products, creating potential shortages in base oil feedstock, especially Group 3.
- Shortage of Key Chemical Additives: The crisis has disrupted the supply of essential petrochemical inputs and raw materials needed for lubricant blending and additives. Majority of additives from Big 5 are now short in Middle East.
- Imbalance of Equipment: The inability of empty containers to return to Asian origin markets, combined with the blockage of the Gulf, is resulting in significant container shortages, further delaying the transport of finished products.
What advice would you give to companies currently trying to adjust to these challenges and how might the supply chain adjust to mitigate future risk?
1.Secure Feedstock via Alternative Sourcing
With roughly 20%–25% of global seaborne oil and significant refining capacity in the Gulf currently offline or inaccessible, physical scarcity is now a greater risk than price.
- Diversify Origins: Actively source base oils from non-affected regions like India, North America, Russia, Brazil, or Southeast Asia to bypass the Hormuz chokepoint.
- North Africa Pivot: Leverage markets like Morocco, India, Turkey and Egypt, which are more insulated from the Gulf conflict and are emerging as regional manufacturing hubs with growing lubricant demand.
- Re-refined Base Oils (RRBO): Accelerate investment in re-refining infrastructure to reduce reliance on virgin base oil imports and strengthen local circular supply chains.
2. Implement Crisis-Ready Logistics
- Shipping rates and war-risk insurance premiums have surged, making traditional Gulf routes nearly untenable.
- Route Rerouting: Work with logistics partners like Maersk. One shipping or CMA to utilize alternative gateways and overland transport to bypass blocked waterways.
- Regional Hub Shifting: Transition inventory to regional distribution hubs outside immediate conflict zones to maintain service continuity for distant markets.
- Inventory Buffers: Shift from “just-in-time” to “just-in-case” inventory models, maintaining higher safety stocks for mission-critical additives and base oils.
3. Adaptive Pricing and Financial Resilience
- The conflict has triggered lubricant price increases of 30%–50%.
- Dynamic Pricing: Move away from fixed-price contracts toward dynamic pricing models that reflect real-time fluctuations in crude benchmarks and freight surcharges.
- Force Majeure Preparedness: Review contracts to include automatic extensions or “materiality thresholds” triggered by conflict-related disruptions to avoid legal failures to supply.
- Credit & Liquidity Management: Intensify focus on cash flow and credit risk, as rising import costs and currency depreciation in some MENA markets strain distributor liquidity.
4. Technical and Strategic Stress Testing
- Companies should move beyond “box-ticking” to deep-dive scenario.
- Operational Stress Tests: Model specific “what-if” scenarios, such as the total closure of major ports (e.g., Haifa, Jabel Ali) or extended blockades, to estimate recovery times and switching costs.
- Target Resilient Segments: While industrial growth may slow due to project delays, focus on the commercial and consumer aftermarket sectors, which typically show higher resilience during geopolitical shocks.
