Asian oil refiners are facing mounting pressure on their margins as the cost of transporting crude from the Middle East rises to record levels, according to the International Energy Agency (IEA). The increase is particularly significant for the region’s refiners because they rely heavily on crude supplies from Middle Eastern producers.

Freight rates have surged as crude cargoes travelling through the Strait of Hormuz are transferred to secondary tankers for onward delivery to Asian markets. The additional handling and longer shipping arrangements have significantly increased transportation costs for refiners and raised the delivered price of crude.

The freight rate for a Very Large Crude Carrier (VLCC) moving oil from the Middle East Gulf to Asia had climbed to about $36 per barrel by early October, the IEA said. The level was more than five times the rate prevailing before the Iran war, adding to the financial strain on companies processing imported crude.

Asian refiners can diversify purchases towards US crude, but freight costs on those routes have also risen sharply. Transportation costs from the US Gulf Coast to China had exceeded $37 per barrel, limiting the savings available from switching suppliers and weakening the benefit of alternative sourcing.

The IEA said margins for Asian refiners processing medium sour crude fell into negative territory in September as transportation costs increased. Higher freight expenses are feeding directly into crude costs, while disruption to Middle Eastern oil flows is reshaping trading routes and increasing the expense of supplies for buyers located farther from producing regions.

The combination of elevated crude prices and record tanker rates means that securing alternative supplies remains costly even when refiners reduce their reliance on traditional Middle Eastern cargoes. The higher logistics burden is therefore continuing to weigh on refining economics across Asian markets.