Vietnam's Oil Sector Faces Supply Squeeze as Kuwait Feedstock Stalls and Refineries Run at Max Capacity

Vietnam is shifting from a modest oil producer to a net importer, a structural change now under acute stress. The country's domestic crude output is in clear decline, with forecasts pointing to a plateau of 5.8 million to 8.0 million metric tons annually between 2026 and 2030. That represents a significant drop from the average of 8.6 million tons over the past five years. This trend is accelerating month-by-month, with production falling 11.43% in February to 741.63 thousand tons, following a similar decline in January.

The scale of this import reliance is substantial. In 2025 alone, Vietnam imported 14.1 million tonnes of crude oil and nearly 9.9 million tonnes of fuel products. The first two months of 2026 show this dependency continuing, with fuel imports surging 43% in volume year-on-year despite a slight dip in crude oil imports. This creates a clear supply-demand imbalance, where domestic production is shrinking while consumption needs are met by a growing import bill.

The situation is now compounded by geopolitical pressure. The closure of the Strait of Hormuz has stalled shipments from Kuwait, which supplied about 80% of Vietnam's crude imports last year. This disruption threatens the very supply lines that Vietnam is increasingly dependent on, turning a structural shift into an immediate operational risk.

Geopolitical Shock: The Middle East Disruption and Its Price Impact

The conflict in the Middle East has triggered the largest supply disruption in the history of the global oil market. Crude and product flows through the Strait of Hormuz have plummeted from around 20 million barrels per day before the war to a near standstill. This has forced Gulf countries to cut total oil production by at least 10 million barrels per day. The immediate impact is a severe squeeze on global supply, with the International Energy Agency projecting a global oil supply plunge of 8 mb/d in March.

The price shock was immediate and severe. Global crude prices spiked to nearly $120 per barrel before easing, but they remain about 20% higher than they were before hostilities broke out. This volatility is a direct result of the blocked trade route and the resulting uncertainty over supply continuity. The disruption extends beyond crude, crippling product markets as well. More than 3 million barrels per day of refining capacity in the region has shut down due to attacks and a lack of viable export outlets, limiting runs elsewhere.

Vietnam is acutely vulnerable to this shock. The country's crude import profile is heavily concentrated, with Kuwait supplying about 80% of its crude imports last year. With shipments stalled, that critical feedstock pipeline is now closed. At the same time, Vietnam's domestic production is falling, and its key refineries-Dung Quat and Nghi Son-are operating at high capacity. This makes the country reliant on imported feedstock, a supply now under direct threat.

In response, the Vietnamese government has moved swiftly to ensure domestic supply. It announced plans to remove its import tariffs on fuels until the end of April. This emergency measure aims to lower the cost of imported fuel, encouraging suppliers to bring in more product and helping to shield consumers from the full brunt of the global price surge. The move underscores how a geopolitical event thousands of miles away is now dictating the immediate supply and pricing reality for a net-importing economy like Vietnam's.

Domestic and Sectoral Consequences: Prices, Profits, and Policy

The global price shock is now hitting Vietnamese consumers and businesses directly. Domestic fuel prices have been adjusted upward by $0.15–0.34 per liter to reflect the volatility. This pass-through is already rippling through the economy, with logistics firms scrambling to adapt. Several freight operators have issued notices announcing increases in transport fees, with some implementing fuel-linked pricing structures based on diesel costs. The Railway Transport Joint Stock Company even announced a 10 percent increase in passenger ticket prices and a 15 percent rise in freight rates, highlighting how higher fuel costs threaten to spark broader inflationary pressures.

To cushion the blow, the government has deployed a multi-pronged policy response. A key tool is a stabilization fund of about $224 million (VND 5.6 trillion) established to mitigate price impacts. More importantly, new rules allow for faster adjustments. Resolution No. 36/NQ-CP, issued in early March, permits domestic fuel prices to be adjusted before the regular weekly review if the base price increases by 7% or more. This aims to prevent sudden, destabilizing shocks. Complementing this, the government has removed its import tariffs on fuels until the end of April, a direct move to encourage supply and lower the cost of imported product.

This creates a stark paradox. While the domestic market faces higher prices and logistical strain, the Vietnamese oil and gas sector itself is entering a new growth cycle. Financial results from 2025 show robust profit growth across the value chain. Upstream firms are leading the charge, with PetroVietnam Drilling reporting after-tax profit up 61.2% in Q4. The entire sector is seeing a widespread recovery, with companies from technical services to refining posting strong year-end results. This divergence underscores a key reality: the sector's profitability is being driven by strong operational performance and project execution, not by the current geopolitical price surge. The government's policy focus is now on managing the domestic fallout from that surge, while the industry's own momentum continues to build.

Catalysts and Risks: What to Watch for the Balance

The immediate balance hinges on a few critical variables. The primary catalyst is the duration of the Middle East conflict. The Ministry of Industry and Trade has issued a clear warning: if military conflict in the Middle East continues into April, the market could face greater challenges. With the Strait of Hormuz still closed and global supply tight, any extension of the disruption would overwhelm import capacity and risk triggering shortages, despite current assurances of secured supply.

A key near-term risk is the potential for further domestic fuel price hikes. The government has already implemented measures to shield the market, but the underlying cost of imported product remains elevated. As recent adjustments increased fuel prices by US$0.15–0.34 per liter, and logistics firms are scrambling to pass on costs, there is clear pressure for more increases. This would directly impact inflation and consumer spending, threatening to spark a broader cost-of-living crisis.

On the supply front, operational capacity provides a buffer, but it is not infinite. Vietnam's two major refineries, Dung Quat and Nghi Son, are currently operating normally and ensuring supply through March. Crucially, the Dung Quat refinery can maintain stable operations at around 118 percent of capacity at least until the end of April. This gives the system a critical runway, but it underscores the fragility of the setup. The refineries are running hot, and any further supply shock or internal disruption could quickly test their limits.

The long-term offset to this vulnerability is a government push to boost domestic exploration and production. The aim is to increase recoverable reserves by 13 million-17 million tons annually during 2026-2030. However, this is a multi-year plan, not an immediate solution. In the coming weeks, the focus remains entirely on managing the current geopolitical shock and its economic fallout, with the refineries' capacity serving as the only real safety net.