Automakers Reformulate Engine Oil as Iran Conflict Causes Base Oil Prices to Triple

Major automakers, including Stellantis (STLA) and Volkswagen (VOWG), are scrambling to approve new lubricant blends for their vehicles amid a severe shortage of high-quality engine oil components, according to industry reports. The supply chain disruption stems from the ongoing conflict in Iran, which has caused prices for a key ingredient to skyrocket.

Supply Shock Sends Prices Soaring

The crisis was reportedly triggered by a March attack on a Shell (SHEL) gas-to-liquids plant in Qatar, which severely hampered the global supply of Group III base oil, a critical component for modern synthetic motor oils. As a result, prices for this high-grade oil in Europe and the United States have surged by nearly threefold from pre-conflict levels, reaching approximately $4,000 per ton.

According to Gabriella Twining, global head of base oil pricing at Argus Media, some Middle Eastern suppliers of Group III base oils have declared force majeure after selling out their inventories. "Even if the Strait of Hormuz were to open tomorrow, we don't expect resupply cargoes to reach Europe and the U.S. until October at the earliest," Twining warned.

Automakers Seek Alternatives

With inventories of high-quality base oils depleted, car manufacturers are urgently seeking out alternative suppliers and formulations to avoid disruptions to vehicle production and maintenance schedules.

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• Stellantis told media outlets it has evaluated "reformulated lubricants" and found alternative products that meet industry standards, emphasizing its focus is to "minimize any impact on vehicle service and maintenance activities."
• Volkswagen stated it has secured its current supply and is evaluating other procurement options that meet its "technical specifications and quality requirements."
• Toyota (TM) has also reportedly secured alternative supply sources.
• Nissan (7201.T) notified its dealers in May that production capacity for "most lubricant products has been reduced," leading it to limit the supply of its high-quality engine oils while it seeks alternatives.
• Suzuki (7269.T) CEO Toshihiro Suzuki informed shareholders the company is actively working to diversify its base oil suppliers.

Market on a Knife's Edge

The situation remains precarious, as supplies from alternative sources are also tight. The industry is operating with little margin for error, according to Holly Alfano, CEO of the Independent Lubricant Manufacturers Association.

"Alternative suppliers have limited availability, and any repeat of shipping disruptions, refinery outages, or other supply shocks could deteriorate the situation quickly," Alfano said. This highlights the fragility of the global lubricant supply chain and the potential for further price volatility or shortages if geopolitical tensions do not ease.