The US–Iran conflict has disrupted an estimated 4.5mn b/d of oil product exports from the Mideast Gulf, prompting Asia-Pacific buyers to pull cargoes from alternative supply regions to help plug mounting supply gaps.
Middle distillate markets are seeing elevated inflows, with record arbitrage arrivals of around 231,000 b/d of jet fuel and gasoil expected in April, mainly from Russia, according to Kpler. For comparison, Asia-Pacific imported just 7,000 b/d from west of Suez in 2025 and 15,000 b/d in 2024. The Asia-Pacific region is typically longer and trade flows typically flow from East to West instead of the other way, but the US-Iran war has invited large volumes of "reverse arbitrage" inflows.
The naphtha market has also attracted close to 3mn t of arbitrage cargoes to offset the 3-4 mn t/month from the strait of Hormuz, with close to 3mn t loaded from west of Suez in March set to arrive in April-May. But these inflows remain insufficient, as Asia typically consumes 6–7mn t/month of naphtha, most of which is sourced from the Mideast Gulf. The resulting imbalance has triggered widespread cracker run rate cuts and multiple force majeure declarations across the region.
Other light distillate markets have also shown similar trends. In the gasoline market, buyers in the Asia-Pacific have drawn a record near 119,000 b/d of gasoline from west of Suez for May arrivals, according to shipping data from Kpler. This is sharply higher than 8,000 b/d in 2025 and 17,000 b/d in 2024.
The influx of arbitrage cargoes have helped to stem some of the losses in supplies, although the latest easing in oil product crack spreads across the board was likely more driven more by an easing in bullish sentiment as peace and ceasefire talks have kicked off. Over the week, gasoline, gasoil and jet fuel crack spreads fell by 21pc, 12.9pc and 2.8pc to $23.74/bl, $54.56/bl and $73.51/bl, respectively. Naphtha crack spreads declined 32.15pc to $212.03/t.
Price tug-of-war
Looking ahead, the onset of Europe's summer driving and travel season could force Asia-Pacific buyers to widen east-west arbitrage spreads to attract sufficient cargoes.
East-west spreads must rise sufficiently to offset high freight costs and incentivise flows east rather than keeping barrels in western markets.
But those spreads have recently narrowed. The gasoline east-west spread fell to $2.95/bl on 15 April from $12.15/bl on 1 April. The prompt naphtha east-west spread retreated to $67.50/t from $100.75/t over the same period, while the gasoil east-west spread turned negative, dropping to –$76.16/t from $130.91/t.
A narrow or negative spread significantly reduces the economic incentive for arbitrage flows into Asia. If the strait of Hormuz remains shut, refiners in the region must try to procure alternative crudes to increase runs to produce much needed domestic supplies or put a cap on demand if the east-west spread remains narrow, according to market participants.
Not sustainable
Arbitrage inflows are providing some relief now, but they are not a sustainable solution if the strait of Hormuz remains shut, given that there are insufficient cargoes globally to meet demand, analysts trading firms said.
Prices will need to "roll up" until demand is curtailed or regional refiners raise run rates by processing alternative crude.
Even then, running crudes that refineries are not designed to run will put a cap on Asia-Pacific refined product output, weighing on residual fuel production and potentially reducing secondary unit efficiency.
