Feature 3 — Propane Supply

The Strait of Hormuz & Its Impact on LPG in the Global Economy

A closer look at how international tensions

continue to disrupt the flow of oil

By Eloise Radley & Shihao Zhou

Editor’s Note: The information in this article was accurate at the time it was written in mid-August. Though BPN encourages readers to check the most up-to-date information for changes after publication, this article analyzes the impact of global conflict on oil to provide insights on trends that can be extrapolated down the road.

PART 1

By Eloise Radley

Benchmark crude prices remain gripped by volatility as market participants weigh the prospect of a deal between the United States and Iran to fully reopen the Strait of Hormuz following months of disruption to Middle Eastern energy flows.

The ICIS Dated BFOE benchmark climbed to $105.34/barrel on July 23 as tensions in the Gulf flared once again, before falling to $88.44/barrel on Aug. 7. (BFOE refers to Brent-Forties-Oseberg-Ekofisk, representing North Sea crude oil grades that provide a benchmark for international pricing.)

Growing hopes that a diplomatic breakthrough could restore normal shipping activity in the Strait of Hormuz, a critical waterway that carried around 20% of global seaborne oil flows before the conflict, have softened crude prices in August.

Iran stated on Aug. 9 that it was close to finalizing a deal with Oman that would outline new shipping lanes in the Strait of Hormuz.

However, significant disagreements between Tehran and Washington remain. Iran continues to seek compensation for U.S. military strikes and has proposed a tolling mechanism for vessels using the route, with reports suggesting fees of 5%-7% of cargo value.

The U.S., meanwhile, has maintained that the Strait should reopen without conditions or transit charges before it will consider lifting its naval blockade on Iranian ports.

Although traffic has increased since the partial reopening in June, vessel movements remain well below normal levels, highlighting persistent concerns among shipowners and insurers over security.

Fewer than 10 ships are said to have traversed the Strait of Hormuz in a 24-hour period in recent weeks.

Supply disruption worries have also been amplified by Houthi attacks in the Red Sea. The Iranian-allied group has maintained pressure on shipping transiting the Bab el-Mandeb, another strategic chokepoint that historically handled around 10%-12% of global seaborne oil trade, while also targeting regional energy infrastructure.

This has left several vessels to reroute north through the Suez Canal, adding around two weeks to voyages from the Middle East to Asia.

More recently, on Aug. 9, the Houthis launched an attack on Saudi Arabia’s 400,000 barrel/day Jazan refinery.

Without a shift agreement between the U.S. and Iran to reopen the Strait and the deescalation of tensions across the wider region, crude and oil product flows from the Middle East will be vulnerable to disruption and benchmark crude prices vulnerable to price spikes.

Asian Inventories Help Contain Price Rallies

Despite geopolitical risks, strong crude inventories across Asia are helping prevent a renewed surge in benchmark prices. The reopening of the Strait of Hormuz in June triggered a wave of restocking activity across Asia as refiners took advantage of restored Middle East crude flows.

With buyers now holding healthier stock levels and many alternative cargoes already secured, the market is less vulnerable to panic buying than it was during the initial phase of the conflict.

PART 2

Propane Buyers Turn to Diversification

By Shihao Zhou

While Asian crude inventories have helped cushion the impact of supply disruptions on benchmark oil prices, propane buyers have increasingly focused on supply diversification to manage geopolitical risks.

China, India and other Asian buyers have increased purchases from suppliers, including the U.S., Canada and Russia, reducing their reliance on any single source of supply. In China, the diversification process began earlier following the U.S.-China tariff dispute, while the Strait of Hormuz disruption further accelerated the shift toward a broader supplier base across Asia.

According to the ICIS Supply and Demand Database, the combined share of U.S. and Middle Eastern liquefied petroleum gas (LPG) in China’s imports fell from 92.3% in 2024 to 70.9% in the first half of 2026. Meanwhile, the Middle East’s share of India’s LPG imports declined from 90.5% in 2025 to 75.6% during the January to May 2026 period.

A Chinese LPG importer said that while companies continue to maintain a certain proportion of term-contract purchases, they currently prefer to retain greater flexibility through spot market procurement. With alternative supply sources such as Canada and Russia continuing to expand, the market is no longer as concerned about supply shortages as it was in the past.

During periods of heightened supply risk, such as the closure of the Strait of Hormuz, buyers place greater emphasis on supply reliability when making purchasing decisions. However, under normal market conditions, lower-priced cargoes remain the primary consideration.

This suggests that even if Middle Eastern supply fully normalizes in the future, suppliers in the region are likely to face greater pricing pressure than before as competition from alternative sources intensifies.

Middle Eastern exporters, meanwhile, are already taking steps to strengthen their position in the market. On Aug. 7, ADNOC announced a $1.3 billion investment to acquire 11 VLGCs (very large gas carriers) and VLCCs (very large crude carriers), expanding its shipping capacity and improving logistics control.

Market participants also said some Middle Eastern suppliers have begun absorbing additional costs, including insurance-related expenses, to ease buyers’ concerns over supply security.

While price is likely to remain the primary consideration for both buyers and suppliers, the recent disruptions have highlighted the growing importance of supply flexibility, logistics reliability and customer support. Buyers are expected to continue diversifying supply sources, while suppliers may need to strengthen service and logistics capabilities alongside maintaining competitive pricing.

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