Escalation of tensions immediately triggered higher prices, rising logistics costs, and widespread feedstock shortages and Group III base oil took the hardest hit.
The high-performance Group III base oil segment proved to be the most vulnerable. Europe has traditionally relied on imports from the Middle East, including production from ADNOC in the United Arab Emirates, Shell Pearl GTL in Qatar, and Bapco in Bahrain. Those supplies covered more than two- thirds Europe’s Group III base oil imports.
Group III base oils prices in Europe went up from being around 1000 EUR per ton in February to approximately 3500 EUR per ton in July 2026 and the upward pressure remains.
Shell’s Pearl GTL plant in Qatar, which produces unique gas-to-liquids (GTL) synthetic base oils classified as Group III/III+, was among the facilities most severely impacted by the Gulf conflict. Gigantic plant, which can produce more than 1 million tons per year has since then only 50% operational and the remaining half of production is stuck in the region due to logistical disruption: the Strait of Hormuz has not opened for regular shipping lines and tankers since early March. As a result, Europe experienced an acute physical shortage of premium GTL base oils.
BAPCO has declared force majeure on its long-term base oils contract, while Adnoc did not offer much to the spot market in July, using product for its own needs and long-term obligations. This added additional shortage to the market. While Group III suppliers from Korea also stopped or limited their Group III offers due to feedstock shortages or local stock building.
As most of the demand was coming for 4cSt (VHVI-4) – this grade is in the biggest deficit now, while supplies of 6cSt are slightly easier to find alongside with 8cSt.
Other base oils segments were also heavily impacted:
- Group II remained relatively stable, supported by alternative supplies from the United States and Asia, but with extra demand coming from Group III substitution has made that market also short;
- Group IV (PAO) experienced very high demand and shortages of feedstocks; prices went up significantly and PAO-4 is extremely short during June and July 2026.
- Group I situation is more balanced as Gulf region did not export much into Europe, most of the supplies consumed locally or were shipped to India and East Africa;
Shipping Bottlenecks Drive Costs Higher
The closure of the Strait of Hormuz led to base oils supplies through neighboring countries and ports outside of the Gulf. Additionally trucking and demurrages increased shipping costs 2-3 times depending on the destination. Transit period has also increased by 1-2 months of extra waiting time. Long delivery increased finance cost for these deliveries.
This makes supplies from the Gulf region very expensive as cash to finance the operation was already in shortage due to significantly increased prices: no supply chain can easily absorb 3-time price increases along with twice as long financing cycles.
How long will it last?
Market participants expect the shortage in Group III base oils remain until the end of the year at best, in worst case scenario it can take up to Q3-Q4 2027 to fully recover until Shell’s plant in Qatar is fully operational and all logistical disruptions are sorted out. Shipping industry is very complex mechanism and, as we learned during COVID time, it does not recover quickly after the disruption.
Despite usually slow demand in Europe in July and August due to the holiday season, Group III market remains very short with almost no spot supplies available for prompt loading. This means the shortage of the products will likely continue through high season in September-October until some slow down before winter holidays in December.
DYM Resources recommends clients to diversify their supply base and mitigate the risk by ordering various Group III base oils for deliveries in 40-60 days as it is unlikely that the availability situation improved dramatically during next coming months.
