The Iran war and effective closure of the Strait of Hormuz has stranded the majority of Middle East oil exports, putting the region’s key oil benchmark under a lot of pressure.
The Dubai crude benchmark–a vital marker for Middle Eastern oil flowing to Asia–used to price ~18 million barrels per day primarily based on crude oil grades from the United Arab Emirates (specifically Upper Zakum and Murban), Oman and Qatar.
According to Reuters, three of the five crude grades that normally underpin the benchmark are now effectively sidelined because they rely on transit through the Strait of Hormuz. That has cut the pool of deliverable crude by roughly 40%, leaving the index far more exposed to sharp price swings.
The Dubai benchmark, alongside Brent and West Texas Intermediate (WTI), is one of the top three primary crude oil benchmarks worldwide. It acts as the benchmark for Middle Eastern oil destined for Asia, serving as a key barometer for the relative value of sour crude oil. The closure of the Strait of Hormuz has triggered a wild rally in the price of Middle East crude to nearly $170 a barrel, surpassing Brent’s all-time high of $147 record in 2008. This has increased costs for Asian buyers using the Dubai benchmark dramatically.
Dubai prices briefly spiked to nearly $170 a barrel before swinging back toward $130, and these moves have eroded confidence in the benchmark.
“The liquidity of the Dubai benchmark is being threatened and market participants would surely be looking for an update to the methodology,” Sparta Commodities analyst June Goh said, as reported by Reuters on Wednesday.
The shift is already underway. Asian refiners are beginning to price U.S. crude against ICE Brent instead of Dubai after weeks of extreme volatility and disrupted Gulf supply.
Japanese buyers have already secured U.S. cargoes priced off Brent, even at steep premiums, marking a clear break from the traditional Dubai-linked system.
The result is a market paying up for alternatives, cutting runs where crude is unavailable, and moving away from a pricing structure that no longer reflects stable, physical supply.
By Alex Kimani for Oilprice.com
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