The ongoing conflict in the Middle East is causing significant disruptions to a specific segment of the global crude oil market, leading two major suppliers of key raw materials for premium engine oils to reduce their product deliveries to the minimum levels allowed under their contracts. According to informed sources, both Chevron (CVX.US) and Motiva Enterprises, a subsidiary of Saudi Aramco, have allocated the minimum contractual volumes for Group III and Group II base oils to several customers.
Base oil supply contracts typically establish high, medium, and low delivery tiers for suppliers. Sources indicate that, aside from occasional refinery outages, they have rarely seen deliveries drop to the minimum level before. Base oils are a crucial raw material for manufacturing various lubricants, widely used in automotive, industrial, aviation, and marine applications.
Gabriella Twining, Head of Base Oil Pricing at the independent energy and commodity price reporting agency Argus Media, stated, "As the name suggests, base oils are the foundation of all finished lubricants. Wherever there is equipment in motion, lubrication is required, and lubricants are made from base oils." She added, "If no new supplies arrive, inventories could be depleted within a month. Vehicle owners might postpone oil changes, but the cost will be higher, and product availability will become even more limited."
The current supply crisis is primarily concentrated on Group III base oils—a medium-refined base stock used alongside Group IV oils to formulate high-performance engine oils for supercars and luxury vehicles. Currently, global Group III base oil production is dominated by three refineries in Qatar, the UAE, and Bahrain. Among them, the Qatari facility has been shut down since sustaining damage in March of this year. The other two remain operational, but their exports, which rely on ports in the Strait of Hormuz, are facing instability and disruptions due to the Middle East conflict.
According to Argus Media data, Group III base oil prices have now surged to record highs. As an alternative, South Korean refineries were once considered the "Plan B" for Group III production. However, these facilities have recently shifted towards producing feedstock for fuels to cope with difficulties in sourcing crude from the Middle East. The final backup option is to use less-refined Group II base oils, but this resource is now heavily allocated for diesel production to alleviate fuel shortages.
The United States relies on the Middle East for approximately 44% of its Group III base oil imports. A key supply source is Shell's (SHEL.US) Pearl GTL plant in Qatar, which was damaged in an Iranian attack in March. Sources indicate it will take at least a year for the Group III base oil market to normalize, aligning with Shell's earlier estimate for repairing parts of the Pearl facility.
Holly Alfano, CEO of the Independent Lubricant Manufacturers Association (ILMA) in the U.S., noted, "These factors are putting pressure on nearly three-quarters of U.S. Group III base oil imports while simultaneously removing the industry's ability to substitute with Group II base oils." She also warned that the upcoming hurricane season could further impact supply. A storm hitting the U.S. Gulf Coast could disrupt 30% to 40% of U.S. Group II base oil capacity and an additional 10% of Group III capacity, exacerbating an already tight supply chain.
End consumers are already beginning to feel the impact. Costa Kapothanasis, head of the Costa Oil quick-lube chain with over 200 locations, recently stated on social media that Mobil and Shell have informed Costco and Walmart that they cannot supply packaged lubricant products in the short term. He expects supermarket motor oil shelves to be empty within weeks.
ILMA estimates that Group III base oil inventories in the Middle East could be depleted by June 2026. Given that most U.S. imports depend on the region and alternative pathways are limited, the industry's buffer is extremely narrow. Analysis suggests that unless there is a substantial de-escalation of the Middle East conflict, this global supply issue is unlikely to be resolved before the same period in 2027. In this context, maintenance costs for high-performance vehicles may rise significantly, potentially leading to difficulties in scheduling services and a lack of available oil.
Regarding the Middle East situation, it was reported that U.S. President Trump convened his national security team on the evening of May 18th for a briefing on military options against Iran. This meeting occurred hours after Trump ordered that planned military strikes against Iran for May 19th not proceed as scheduled. According to two U.S. officials, the meeting focused on the next steps in the conflict with Iran, progress in diplomatic negotiations, and potential U.S. military actions. The briefing reportedly showed Trump is "seriously considering resuming military action against Iran."
Sources familiar with the matter stated that some individuals advocating a hardline stance against Iran believe Trump currently "has a mood to deliver a strong blow to force Iran to make concessions in negotiations." Reports indicate the U.S. views Iran's latest feedback in negotiations as "not showing significant progress," while regional mediators are trying to encourage Iran to propose a more flexible plan in response to U.S. demands on nuclear issues.
On May 19th, U.S. Vice President Vance stated at a White House press briefing that direct negotiations between the U.S. and Iran have made "significant progress" in establishing communication channels and advancing the diplomatic process. However, the U.S. also has a "Plan B" prepared to resume military operations. He declined to disclose specifics about the current behind-the-scenes consultations.
Additionally, it was reported that a senior NATO official stated that if the Strait of Hormuz is not reopened by early July, NATO will consider whether to "assist vessels" through the waterway. The proposal has reportedly gained support from several NATO member states but has not yet achieved the unanimous consent required for adoption. The senior NATO official said that although some NATO countries currently still oppose authorizing a joint NATO operation for the strait, they would ultimately support the proposal if the blockade persists.
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