Middle East conflict impacts oil trade balances and refiner profits

Key facts

• Middle East conflict influences global oil prices, inflation, and trade balances.
• Net oil exporters outside Asia generally benefit from higher crude prices.
• Countries with limited refining capacity or high reliance on refined products face challenges.
• Record high jet fuel crack spreads have impacted airlines.
• Some Asian central banks have raised rates due to rising oil prices and fiscal costs of subsidies.

The ongoing Middle East conflict is causing significant shifts in global oil markets, impacting inflation, monetary policy, and trade balances across various economies. While net oil exporters, particularly in Latin America, the Middle East, and Africa, are generally benefiting from higher crude prices supporting their fiscal and external balances, the situation is more complex for others. Countries like Egypt, Turkey, and South Africa, despite being net oil importers, are facing challenges. The article highlights that not all net crude oil exporters are winners, as a country's direct exposure to oil prices depends on its oil trade balance and crack spreads. Crack spreads, representing refiners' profit margins, have increased significantly since the closure of the Strait of Hormuz, with refined product supply being more constrained than crude. Jet fuel cracks, in particular, spiked to record highs in March, leading to thousands of flight cancellations by airlines. Some Asian central banks, such as those in Indonesia and the Philippines, have already begun hiking rates in response to rising oil prices and the fiscal costs associated with extending fuel subsidies. In Europe, relief measures have been extended, impacting government finances, while the US has primarily released oil reserves. The article notes that emerging market economies outside of Asia are largely net beneficiaries, though specific circumstances like Mexico's lack of refining capacity or India's reliance on crude imports present unique challenges.