Escalating tensions in the Middle East may disrupt global LPG flows

Heightened tensions in the Middle East and tighter Iranian sanctions could affect LPG supply, threatening Iranian exports while ongoing OPEC+ cuts shorten outflows in the region.

Iran remains a key player in the LPG complex, exporting some 1,000,000 mt in March, with volumes in April currently at 600,000 mt, according to S&P Global Commodity at Sea shipping data.

Of the total April volumes, propane accounted for 400,000 mt, while butane totaled 200,000 mt, CAS showed.

Volumes were predominantly headed to China at some 400,000 mt for April, the data showed.

In the wake of Iran's strikes on Israel, the US will impose further sanctions on the country, according to US Treasury Secretary Janet Yellen. Legislation designed to block China's consumption of Iranian crude oil was also passed, with votes decisively in favor.

Subsequently, players have questioned how tighter US sanctions could threaten oil supply and potentially disrupt LPG flows.

"Right now there hasn't been a big impact on LPG; it could have a large effect, especially on butane, as Iran exports a significant amount," a Mediterranean-based trader said.

Notably, Iran has remained a key supplier in the Middle East as OPEC+ cuts tighten LPG flows from throughout the region, according to S&P Global Commodity Insights.

"Despite a drop in Middle East LPG exports in Q1 2024, Iran's LPG exports continued to grow," the analysts said. "Iran's LPG exports in Q1 of 2024 stood at about 2.8 million mt, a surge of 34% from Q1 2023."

Growth in Iran's exports came amid gas infrastructure development and ongoing efforts to curb flaring, the analysts added.

While the US and Europe are planning to place sanctions on Iran in order to dissuade tensions in the Middle East, US Treasury secretary Janet Yellen admitted this week that Iran "clearly" continued to export its oil and that there was "more to do" to curb the trade.

"Iran's success in exporting its crude underscores the difficulties facing the US and the EU as they seek to build up pressure on Tehran following its missile and drone attack on Israel," Tee Zhuo, editor at the Financial Times, said on April 18.

Additionally, since independent refineries in China receive almost 80% of Iran's exports, the possibility of China defying US pressure on its oil supplies from Iran presents a serious obstacle to US efforts to impose sanctions.

Several LPG players also remain skeptical if tighter US and European sanctions on Iranian oil would have a substantial impact on the LPG market.

"[Sanctions] might disrupt but I doubt they could stop it. But also, this might not cover LPG," a source told S&P Global Commodity Insights, "But I wonder if the sanctions would work at all."

"My guess is that it won't make any impact and all that LPG will still move," a second source said.