Stephen Hay and Claude AI 

This paper is a companion to New Zealand’s Diesel Supply Crisis, which examined the domestic reserve position and economic consequences. This paper examines the upstream constraints: the geopolitical and commercial forces that determine whether replacement fuel can be sourced at all, and the logistics that determine when it could possibly arrive. The two papers should be read together.

EXECUTIVE SUMMARY

The companion paper established that New Zealand faces a credible risk of diesel depletion in late April to early May 2026. This paper addresses the question the government has not publicly answered: where would replacement diesel come from and how long would it take to arrive?

The answer is deeply uncomfortable. New Zealand’s fuel supply chain runs through a single geography – South Korean and Singaporean refineries that source the majority of their crude oil through the Strait of Hormuz. That strait has been effectively closed since 1 March 2026. The refineries are cutting output. South Korea has formally capped fuel exports. The product tanker fleet that services New Zealand is under simultaneous demand from every fuel-stressed nation in the Asia-Pacific region.

The government’s stated response – relaxing fuel specifications to access a broader range of refineries – is a logical step with limited practical effect in the relevant timeframe. It widens the procurement universe but cannot create product tankers that don’t exist, cannot compress 35-to-45-day transit times to something useful and cannot override the simultaneous demand from nations with deeper pockets and strategic reserves to deploy.

This paper traces the full upstream chain: the Strait of Hormuz closure and its military trajectory; the insurance market’s functional blockade; the specific exposure of South Korean and Singaporean refineries; the stranded tanker fleet; the alternative supply geography and its realistic transit timelines; and the product tanker bottleneck that is binding constraint on recovery, regardless of which source is selected.

1. THE STRAIT OF HORMUZ: STATUS AND TRAJECTORY

The Military Situation as at 23 March 2026

The US-Israel conflict with Iran that began on 28 February 2026 has evolved rapidly in the three weeks since. The military picture as of 23 March is as follows.

US military campaign: CENTCOM announced on 17 March the destruction of underground bunkers along the Iranian coastline using 5,000-pound penetrator munitions, specifically targeting Iranian cruise and anti-ship missile stockpiles. From 19 March the US began a broader aerial campaign deploying A-10 Thunderbolts and Apache gunships to strike Iranian fast-attack craft and drone infrastructure. Trump issued a 48-hour ultimatum on 22 March threatening to strike Iranian power infrastructure if the strait was not opened, while simultaneously weighing options to occupy or blockade Kharg Island, which processes approximately 90 per cent of Iran’s crude oil exports.

Iranian posture: Iran has not imposed a blanket closure but operates what analysts describe as a “permission-based transit” system. Vessels from India, Pakistan, Turkey and China have been allowed passage following bilateral government-to-government negotiations. Tehran has warned it will retaliate against all US energy infrastructure in the region if Trump follows through on the power plant threat.

Transit data: Prior to the conflict, the strait averaged over 153 vessel transits per day. Since 1 March, only 78 vessels have passed through in total – a daily average of 13. Of recent traffic, almost all has been Iranian-flagged or, to a declining degree, Chinese-linked vessels.

The Insurance Market’s Functional Blockade

A development that has received insufficient public attention is the degree to which the insurance market has imposed its own blockade on top of Iran’s – one that would persist even if Iranian interdiction ceased immediately.

Before the crisis, war-risk insurance for a Gulf transit ran at 0.02 per cent to 0.05 per cent of a vessel’s value. Premiums have since risen to approximately five per cent of vessel value – meaning insuring a US$100 million tanker now costs approximately US$5 million per single transit, roughly 250 times pre-crisis rates. Major P&I clubs, including Gard, Skuld and NorthStandard have issued formal cancellation notices for the Persian Gulf from 5 March.

Lloyd’s market practitioners have stated bluntly that if an owner approached the hull market requesting cover for a Hormuz transit, “there is a possibility that you would struggle to find underwriters looking to write that”. An environmental dimension amplifies underwriter caution: the Persian Gulf lacks the oil spill response capability available in other waters, and the catastrophic scenario of a struck VLCC sinking in a shallow, enclosed sea has not been adequately priced by the market. This concern would not disappear with a ceasefire.

The US government has attempted to backstop the market with a US$20 billion reinsurance programme through the Development Finance Corporation. Insurer appetite for partnership has been expressed, but the mechanics remain unpublished. Government-backed reinsurance historically unlocks private market capacity over weeks, not days.

The implication for New Zealand: Even if the military situation resolved tomorrow, the insurance market recovery follows its own timeline. Underwriters will want sustained evidence of reduced threat – not announcements – before restoring normal coverage. A ceasefire is necessary but not sufficient to restore tanker flows at volume.

2. THE REFINERY PROBLEM: NEW ZEALAND’S ACTUAL SUPPLY CHAIN

South Korea: The Dominant Supplier Under Maximum Stress

As established in the companion paper, approximately 51 per cent of New Zealand’s refined fuel derives from South Korean refineries. South Korea sources approximately 70 per cent of its crude oil through the Strait of Hormuz and is the single most systemically exposed developed economy in this crisis.

The headline figures are severe, but the structural dimension is more alarming than the capacity numbers alone.

South Korea’s government response has escalated in parallel. The Ministry of Trade, Industry and Energy has imposed mandatory export caps at 100 per cent of 2025 monthly baseline levels – a hard ceiling preventing surge exports. Crisis Level 3 energy protocol is active. The government is subsidising freight costs for Cape of Good Hope routing. Petrochemical firms including Lotte Chemical, LG Chem and Hanwha Solutions have issued force majeure notices.

The critical warning, confirmed by Argus Media on 19 March, is that South Korea is actively considering an outright export ban – a step that would effectively terminate the supply relationship with New Zealand overnight. South Korean refiners told S&P Global in early March that second-quarter term contracts could become “rather difficult” if feedstock disruption persisted beyond one to two months. That window expires in late April.

Singapore and the Wider Regional Picture

Singapore, source of approximately 31 per cent of New Zealand’s fuel, faces the same feedstock pressure through a different refinery structure.

•       ExxonMobil Jurong (592,000 bpd): cut to approximately 50% capacity or lower, down from over 80%

•       Singapore Refining Company (290,000 bpd): cut to 60% capacity; March naphtha deliveries delayed

•       Pengerang Refining Company, Malaysia (300,000 bpd, Petronas/Saudi Aramco JV): crude unit shut entirely; 70%+ of seaborne crude sourced via Hormuz

Thailand has banned most refined fuel exports. China has imposed an outright product export ban. The regional refinery landscape is contracting simultaneously from multiple directions and New Zealand sits at the far end of every supply chain affected.

3. THE STRANDED FLEET: WHAT IS LOCKED IN THE GULF

Scale of the Disruption

Approximately 200 internationally trading, non-sanctioned tankers are stranded in the Middle East Gulf, carrying at least 21 billion litres of oil as of 12 March. The broader exposure zone – including the Gulf of Oman and Arabian Sea – encompasses 706 non-Iranian tankers comprising 334 crude tankers, 109 dirty petroleum product tankers and 263 clean petroleum product tankers.

On a normal day, approximately 107 cargo-carrying vessels transit the strait, representing around 10.3 million deadweight tonnes of shipping. Transit has collapsed to a daily average of 13 vessels, virtually all Iranian-flagged.

South Korea’s Concentrated Exposure

The South Korean position is particularly acute and directly relevant to New Zealand’s forward supply. Sinokor, South Korea’s largest tanker operator, has six VLCCs currently stranded in the Gulf – the highest tally of any single shipowner globally. This exposure is compounded by an extraordinary expansion: of 45 VLCC sale-and-purchase deals completed in 2026 to date, Sinokor has acquired 35, potentially now controlling 100 to 120 supertankers – up to one-third of the available spot VLCC fleet. MSC has recently formalised a tie-up with Sinokor, adding a further dimension of corporate risk concentration.

Seven crude tankers linked to GS Caltex and HD Hyundai Oilbank are stranded inside or near the strait. Each VLCC carries up to two million barrels of crude. That is feedstock that South Korean refineries need and cannot access – directly suppressing the output from which New Zealand’s supply derives.

Who Is Actually Moving

The bilateral permission system Tehran is operating has produced a narrow and unpredictable flow:

•       India: two LPG tankers confirmed safe passage following government-to-government negotiation

•       Pakistan: an Aframax tanker transited on 22 March following direct diplomatic engagement

•       Turkey: one vessel permitted following bilateral negotiation

•       China: 11 Chinese-linked vessels transited 1–15 March, mostly general cargo rather than tankers; a Chinese-owned vessel was struck by shrapnel on 12 March, which has since deterred further Chinese transits

New Zealand has no bilateral diplomatic channel with Iran and no established government-to-government relationship of the kind that has secured passage for Indian and Pakistani vessels. New Zealand is not in a position to negotiate preferential access to the strait.

4. ALTERNATIVE SUPPLY: THE HONEST GEOGRAPHY

What Relaxing Fuel Standards Actually Does

The government’s most-publicised near-term measure – temporarily relaxing New Zealand’s ultra-low sulphur diesel standard from 10 parts per million to 15 parts per million (the US standard) – is genuine in intent and limited in effect.

The measure widens the theoretical procurement universe by making New Zealand-bound cargoes compatible with a broader range of refineries. It does not:

•       create product tanker capacity that does not exist in the relevant trade lanes

•       compress transit times that are determined by physical geography

•       override the simultaneous demand from every other Asia-Pacific nation competing for the same alternative supply

•       address the engine compatibility issue: vehicles manufactured after 2007 are calibrated for 10ppm ULSD, and off-spec product risks damage to catalytic converters and fuel injection systems across most of the commercial fleet

The honest assessment is that this measure is marginally useful – it may unlock one or two additional cargoes that would otherwise be unavailable – but it is not transformational.

The Realistic Alternative Sources and Their Problems

The IEA “Oil Tickets” Problem

New Zealand’s official emergency backstop relies partly on IEA oil tickets – paper commitments from the US, UK and Japan to supply emergency barrels if needed. The IEA’s collective 400-million-barrel release, announced 11 March, is the largest in the organisation’s history.

The problem is that paper tickets are a long way from a product tanker full of diesel arriving at Marsden Point. IEA ticket obligations are typically fulfilled in crude oil, not refined product — meaning New Zealand would need to either arrange refining of the crude (it has no refinery) or negotiate conversion of the obligation into finished product from a third-party refiner. Both paths add weeks to the timeline. If the IEA member states honouring the tickets are simultaneously managing their own supply crises – which the US, UK and Japan all are – the obligation’s practical value is further reduced.

5. THE TRANSIT TIMELINE: WHEN COULD DIESEL ACTUALLY ARRIVE?

The Baseline: Strait Reopens This Week

The most optimistic scenario – that the military campaign or diplomacy resolves the strait closure this week – produces the following arrival arithmetic:

•       Tankers already loaded and trapped inside the Gulf: If the strait cleared this week and pre-loaded tankers departed immediately, standard transit from the Gulf to South Korean refineries takes 10–12 days, with refinery processing and loading of finished product adding a further 5–10 days, and transit from Korea to New Zealand taking approximately 10–12 days. First diesel from this pipeline could arrive at New Zealand import terminals in early to mid-April — a tight but potentially adequate timeline given current stock levels.

•       Cape of Good Hope replacement crude already being arranged: A VLCC sailing from the Gulf around the Cape to South Korean refineries covers approximately 14,000–15,000 nautical miles at 13–14 knots, yielding a transit of 40–45 days to reach Korea. Add refining time and New Zealand transit and the first Cape-routed crude reaching New Zealand as refined diesel arrives no earlier than late April to early May – even if procured and dispatched immediately.

Scenario Analysis

Note: All timelines assume Korea’s export cap is not upgraded to an outright ban. If South Korea implements a full export ban, the Korean supply pipeline closes regardless of strait status, and all timelines shift to alternative source scenarios.

6. THE PRODUCT TANKER BOTTLENECK

The constraint that receives almost no public attention is the one that ultimately determines whether any of the above scenarios are executable: the availability of LR2 product tankers on the relevant trade routes.

New Zealand receives refined diesel on LR2 tankers (Long Range 2, approximately 80,000–120,000 deadweight tonnes) – the workhorses of the global clean petroleum product trade. New Zealand’s five importers do not own vessels: they charter them on the spot market or under short-term agreements.

The LR2 market has been comprehensively disrupted:

•       Charter rates for LR2s have approximately tripled since the crisis began as every Asia-Pacific importing nation scrambles for the same vessels simultaneously

•       Vessels that normally ran Korea–New Zealand routes are being diverted to higher-value emergency charters by South Korean and Australian importers with government-backed procurement budgets

•       The global product tanker fleet is partially trapped inside the Gulf (263 clean petroleum product tankers in the affected zone per Kpler data as of 2 March) or repositioning away from Middle East routes

•       The Cape of Good Hope diversion effectively removes vessels from circulation for 80–90 days per voyage instead of the normal 20–25, reducing available fleet capacity by a structural 15–20%

New Zealand’s importers – BP, Z Energy, Mobil, Gull and Timaru Oil Services – are relatively small players in a market where sovereign wealth funds, state oil companies and government-backed emergency procurement programmes are competing for the same vessels at any price. The government’s subsidy of Cape of Good Hope freight costs helps at the margin but does not create vessels that do not exist in the required lane.

7. THE INFORMATION GAP

A consistent theme in this analysis is the absence of forward information in the public domain. This absence is not accidental.

MBIE’s fuel stock data explicitly excludes shipments more than two weeks away. The government describes specific forward cargo details as “commercially sensitive”. Fuel importers have made carefully worded present-tense statements that do not constitute forward commitments. No refinery has published a recovery date. No shipping company has announced confirmed future sailings to New Zealand.

There are legitimate reasons for this. Forward supply contracts are proprietary. Publishing them exposes procurement strategies to competitors simultaneously bidding for the same cargoes. In a market this disrupted, contracts being negotiated today may not be executable next week – Korean refiners facing export caps cannot commit to volumes they cannot guarantee.

But the most uncomfortable possibility – and the one the available data does not allow to be excluded – is that the forward pipeline for April and May does not yet exist as confirmed contracted supply. If Korean refiners are still managing their own feedstock crisis and have only just implemented export caps, the next round of procurement negotiations for New Zealand-bound cargoes may not yet be concluded. There may be no confirmed ships to announce.

The government has acknowledged a 12-week internal planning horizon, which suggests officials are privately modelling a disruption extending well into June. That is a reasonable planning horizon. The question is whether the decisions required to act on it – which are expensive, politically uncomfortable, and require admitting the scale of the problem publicly – are being made at the speed the arithmetic demands.

8. CONCLUSION

The companion paper established that New Zealand may run out of diesel in late April to early May. This paper has established why the straightforward response – source it from somewhere else – is far more constrained than public statements have implied.

The supply chain that feeds New Zealand’s economy runs through a single chokepoint, via a single refinery geography, on a fleet of vessels competing with every fuel-stressed nation in the hemisphere. The measures available to government are genuine but limited: specification relaxation widens the procurement universe without creating supply; IEA tickets provide a backstop that requires weeks to convert into physical product; diplomatic engagement cannot replicate the bilateral channels that India and Turkey have with Tehran.

The two scenarios that determine New Zealand’s outcome remain outside New Zealand’s control:

•       The strait reopens and Korean refiners hold term contracts through April. In this scenario, the trapped tankers move, feedstock flows, and the worst of the crisis passes before onshore stocks are exhausted. This is the scenario the government’s public messaging is calibrated around.

•       The disruption extends beyond mid-April and South Korea implements an export ban. In this scenario, no available policy intervention can substitute for the physical absence of contracted, loaded, crewed and insured product tankers en route to New Zealand. The late-April depletion timeline in the companion paper becomes the central case, not the worst case.

The window for building the administrative infrastructure to manage the second scenario with any precision – sector prioritisation lists, upstream terminal allocation, emergency procurement from alternative sources – is measured in weeks, not months. That window is open now.

NOTES AND SOURCES

1 CENTCOM operational updates, 17–19 March 2026; Reuters, AP and Al Jazeera reporting on US military campaign.

2 Trump statement via Truth Social, 22 March 2026; Reuters reporting on Kharg Island option.

3 Starboard Maritime Intelligence transit data, cited in multiple shipping intelligence sources week of 17 March 2026.

4 Lloyd’s List market practitioner interviews, March 2026; Bloomberg tanker insurance rate reporting.

5 P&I club cancellation notices: Gard, Skuld, NorthStandard, 5 March 2026; Lloyd’s wordings on war risk cancellation notice periods.

6 US DFC reinsurance programme announcement, March 2026; insurer response reported by Reuters.

7 S&P Global Platts refinery run rate data, South Korea and Singapore, March 2026; Argus Media refinery capacity reporting.

8 Argus Media, 19 March 2026: South Korea fuel export cap confirmed; Reuters, 18 March 2026: export ban under active discussion.

9 Lloyd’s List Intelligence VLCC tracking data, week of 17 March 2026; Kpler tanker positioning data, 2 March 2026.

10 Veson Nautical VLCC sale-and-purchase data, 2026 YTD; Lloyd’s List Intelligence on Sinokor fleet expansion.

11 S&P Global interviews with Korean refinery executives, 3–11 March 2026 (two-month contract horizon warning).

12 IRGC bilateral permission announcements: India (5 March), Pakistan (22 March), Turkey (mid-March); AIS data on Chinese vessel messaging.

13 Transit time estimates based on standard VLCC routing tables at 13–14 knots; Clarksons voyage calculator reference data.

14 LR2 charter rate data: Baltic Exchange clean tanker indices, March 2026; broker commentary.

15 MBIE Fuel Stocks Update, 18 March 2026 (data at midnight 15 March 2026): two-week visibility horizon explicitly stated.

16 Finance Minister Nicola Willis, media comments, 17–18 March 2026: commercially sensitive characterisation; 12-week planning horizon.

17 Prime Minister Christopher Luxon, media stand-up, 19 March 2026: “things could get worse before they get better”.

18 IEA press release, 11 March 2026: 400-million-barrel collective release; IEA emergency sharing mechanism rules on crude vs product obligations.

19 NSW service station outage data: NRMA and NSW Government reporting, 20 March 2026. Australian refinery output: DCCEEW 2025 data.

All data sourced from publicly available MBIE, IEA, S&P Global, Reuters, Argus Media, Lloyd’s List and Bloomberg reporting as at 23 March 2026. It is a companion to New Zealand’s Diesel Supply Crisis (20 March 2026). Claude is AI and can make mistakes, sources, citations and conclusions have not been independently checked.