Iran Crisis and Rising Oil Prices
What's Waiting for the Automotive, Petrochemical and Motor Oil Sector?
The rise of the Iranian crisis Oil The price increases in their markets put serious pressure on the manufacturing industry, logistics lines and supply chains worldwide. According to Investing.com data, due to tension around the Strait of Hormuz and diplomatic congestion between the United States and Iran, the barrel price of Brent oil has climbed to $91 levels, while the West Texas type (WTI) crude oil prices have also exceeded the $85 limit. The disruption of navigational traffic in the Strait of Hormuz, where about 20 percent of the global oil trade passes, due to war risks, fuels concerns about supply shortages worldwide.
However, this climb in oil prices not only affects fuel pumps. Oil is the most basic raw material input of modern industry. In particular, the automotive production, petrochemical product derivatives and engine oils (mined oils) sector is one of the areas directly and most severely affected by fluctuations in crude oil prices.
Foreign Trade Image with TradeMap Data: Turkey and World Table
When the TradeMap data and global foreign trade statistics presented by the International Trade Center (ITC) are examined, the enormous weight of petrochemical, mineral oils and automotive sectors in the international economy is evident.
Global Oil and Derivative Trade (HS 2710): Worldwide, the total export volume of processed petroleum oils, base oils and refined products outside of crude oil reaches trillions of dollars.
Energy and Petrochemical Balance of Turkey: Turkey meets a very large part of the energy and petrochemical raw material requirement required by the manufacturing industry through imports. Turkey's total annual imports exceed $360 billion, while energy and petroleum derivative product imports constitute one of the largest items of this amount.
Import and Export of Mineral Oils and Engine Oils: Turkey is dependent on high-rate imports in base oils, the main component of engine oils. Hundreds of thousands of tons of base oil and special chemical additives (HS 3811) are imported each year. However, Turkey is a regional blending and production center that exports millions of dollars of mineral oil annually to nearby geography, the Balkans and the Middle East with its high-quality mineral oil and engine oil products.
Automotive and Side Industry Export (HS 87): Within Turkey's total exports of $270 billion annually, the automotive sector is the leader in exports with a share exceeding $36 billion. The export of automotive parts and parts (HS 8708), which accounts for more than $8 billion of this amount, proves the critical position of the Turkish subsidiary industry in the global OEM (main vehicle manufacturer) supply chain.
Oil Derivatives and the Role of Petrochemical Inputs in Automotive
About 15 to 20 percent of the materials used in the manufacture of a car are produced directly from petrochemical derivatives on a weight basis. Intermediates such as napta and ethylene, which are obtained by processing crude oil in refineries, are converted into automotive plastics, synthetic rubbers and special coatings.
Plastic and Polymer Axles: Components such as vehicle bumpers, torpedo panels, door interiors and engine cover are produced from polypropylene and polyurethane based materials. When the price of oil rises, the unit cost of these polymers instantly increases.
Synthetic Rubber and Tires: Vehicle tires, sealing gaskets, and engine hoses contain synthetic rubber. The primary raw material in rubber production is petrochemical derivatives.
Composite and Insulation Materials: Sponges, felts and foams used in in-car sound and heat insulation are manufactured with petrochemical-derived resins.
Rising crude oil prices are embossing the raw material supply bills of manufacturers manufacturing parts in the automotive side industry.
Pressure in the Engine Oils and Mine Oil Sector
One of the most striking reflections of the Iranian crisis and the rise in oil is seen in the engine oils and industrial mine oil market. Engine oils have vital functions that extend the life of the engine, reduce friction and prevent wear.
Climbing in Base Oil Prices: 80 to 90 percent of an engine oil consists of base oil (base oil). Base oils are obtained directly by refining crude oil. When crude oil prices rise, Group I, Group II and Group III base oil prices used in synthetic engine oils rise rapidly.
Additive (Katik) Costs: The detergents used in motor oils, anti-wear agents, and viscous-developing chemical additives are also produced by petrochemical synthesis. The import cost of solid packages is multiplied by exchange rate and petrochemical price increases.
Impact on Automotive Main Industry and Services: The first filling oils (first fill) of zero km vehicles in automotive factories and periodic maintenance costs in authorized services are directly affected by the increase in engine oil prices. This raises maintenance costs for vehicle owners, while increasing the need for operating capital for oil producers.
Side Industry Manufacturing Oils: Industrial cutting oils, hydraulic oils and boron oils used to cut, process and press metal parts in the automotive side industry are also mineral oil derivatives. The expensiveness of these oils used in the manufacturing process directly raises the cost of parts-per-piece manufacturing.
Supply Chain and Logistics Clamp
Rising oil prices not only increase the cost of raw materials, but also make logistics operations difficult.
Freight and Fuel Surcharges: Fuel adjustment coefficients (BAFs) applied in maritime transport raise freight prices. Due to the risks of the Strait of Hormuz and the Suez Canal, the ships' turn towards the Cape of Good Hope extends both their navigation times and doubles their fuel consumption, doubling the freight.
Price Reflectivity: Automotive side industry suppliers often make long-term and fixed-price agreements with the main industrial companies. It is not possible to immediately reflect incoming raw materials, engine oil and logistics increases to final parts prices. This severely suppresses the profit margins of side-industry firms.
Future Predictions and Strategic Steps
In this fluctuating environment at oil prices, there are some strategic measures that the automotive, mineral oil and by-product industries must take. Raw material Supply Safety: It is of great importance to diversify the supplier network, not dependent on a single source in base oil and petrochemical polymer supply.
Recycled Oil Technologies: Recycling waste oils to quality base oil by re-rafination method ensures both environmental sustainability and reduces imported base oil dependence.
Efficiency and Energy Management: Investments that increase energy efficiency in side-industry facilities should be prioritized, and recovery and reuse of processing oils used in manufacturing processes should be encouraged.
As a result, as the Strait of Hormuz and Iran-based geopolitical crises lift crude oil prices, the impact of this situation is not limited to fuel, but creates a wide range of cost pressures from petrochemical products to engine oils and automotive side industry manufacturing. In order for Turkey to maintain its export leadership in the automotive sector and its strong position in the global supply chain, it needs to implement flexible supply and raw materials management strategies with determination.
The video below examines the direct effects of the crisis in the region and the fluctuations in oil prices on the global automotive supply chain and automotive parts manufacturers. For Video click here.
