Australia is confronting a looming shortage of critical lubricants, driven by rising base oil prices and supply disruptions stemming from the ongoing Middle East conflict. This issue extends beyond fuel for transport, affecting sectors reliant on combustion engines, including agriculture.
What are lubricants and why are they important?
Lubricants, primarily derived from base oils, are essential for cleaning, cooling, and protecting engines from seizing. They are used in everything from motor vehicles to lawnmowers, industrial vehicles, mining equipment, and tractors, making them a vital component of the oil market.
Gabriella Twining, head of base oils pricing at Argus Media, notes that some major lubricant blenders can no longer supply factory fill to leading car manufacturers in Europe, the US, and Asia. Factory fill is the precisely calibrated first oil poured into a new engine. If the situation deteriorates, dealerships may resort to poorer quality blends, compromising engine efficiency and performance.
How have prices changed?
Wholesale base oil prices have surged since the conflict erupted just over three months ago, with increases now reaching consumers. Data from Argus reveals that benchmark prices for group II oil in Asia—used in various engine oils—more than doubled from $760 per tonne in late February to $1,790 per tonne in early June. Supply of group III base oils, used in modern synthetic engine oils, is severely constrained.
Several refineries in the Middle East, including those in Qatar and Bahrain, have been damaged, reducing lubricant production. Rebuilding takes time, and refineries also require crude supplies through the Strait of Hormuz to normalize—a goal that remains elusive despite ongoing peace talks.
What happens next?
As wholesale prices filter into the retail market, commuters may delay oil changes amid cost-of-living pressures. Chris Bright, market development commercial director at Gulf Western Oil, observes that consumers are price-sensitive: “As soon as consumers see prices go up, some say, ‘I’ll just leave it another 12 months before I service my vehicle.’”
Farmers may face similar decisions for their machinery, potentially reducing crop yields, especially if fuel supplies remain compromised. Electric vehicle owners are unaffected, as EVs do not use engine oil, though EV sales, while booming, still represent a small share of Australian vehicles.
How exposed is Australia?
Australia relies heavily on imports from South Korea, Singapore, and Qatar—all affected by the US-Israel attacks on Iran. Some domestic companies specialize in reusing waste oil, a practice that could gain importance amid strained supply. International competition for base oils is intensifying, with refineries targeting higher-price regions, leaving Australia vulnerable.
The Australian Lubricant Association (ALA) has urged the federal government to treat base oils with the same urgency as transport fuel, including diplomatic trips to Asia. The ALA also requests that Australia’s export credit agency underwrite base oil imports, as it does for fuel, to help secure supplies. Additionally, the association wants base oil supply included in bilateral talks in Asia.
Industry participants argue that an engine without fuel and an engine without lubricant both end up stopped. A spokesperson for Minister for Industry Tim Ayres stated that the government is engaging with industries and monitoring key supply chains.
