ILMA representatives met Monday with officials from the U.S. Department of Energy (DOE) to address growing concerns over base oil supply disruptions tied to ongoing military activity in the Middle East. The meeting, which included high-level DOE representatives, was both productive and sobering, with all parties acknowledging the severity of the situation and the lack of clear near-term solutions.

During the discussion, ILMA outlined the significant impact on global and U.S. base oil supply—particularly for Group III base stocks, which are critical for high-performance lubricants.

Approximately 44% of U.S. Group III demand is typically supplied from the Persian Gulf, but that supply is now largely offline. Damage to Shell’s Pearl GTL facility in Qatar—caused by Iranian rocket strikes—has halted production from a key source of roughly 30,000 barrels per day, with repairs expected to take at least a year. Additional disruptions stem from force majeure declarations by producers in Bahrain and the UAE, as well as the continued closure of the Strait of Hormuz, which has stranded product in the region.

Compounding the issue, South Korea—responsible for about 30% of U.S. Group III imports—relies heavily on crude oil shipments from the Persian Gulf. While Korean refiners may pivot to alternative crude sources, lower yields are expected.

Domestic production is not positioned to fill the gap in the near term. New Group III capacity under development by Chevron and ExxonMobil will not come online until 2027, and existing North American producers lack the ability to offset the lost volumes. Re-refined base oil producers are similarly constrained by limited capacity and feedstock availability.

Market impacts are already emerging. Suppliers have begun declaring force majeure or placing customers on allocation, as well as shifting from contract to higher posted prices. ILMA anticipates that Group II refiners may follow suit, particularly as refinery economics incentivize a shift toward diesel production.

The disruptions are expected to ripple across multiple sectors. Roughly 60% of Group III base oils are used in automotive applications, prompting ILMA to seek emergency provisional licensing relief from API and from General Motors for its Dexos-approved products. In industrial and metalworking segments, substitution of base oils may become more common.

Looking ahead, ILMA warned that the U.S. base oil market could remain under sustained pressure through at least 2027. Members are preparing for continued supply constraints across Groups II, III and IV, along with escalating costs throughout the supply chain—including transportation, insurance and logistics.

DOE officials requested additional input from ILMA to better understand the evolving situation, signaling ongoing coordination between industry and government as the disruption unfolds.