Biofuels are back in fashion - War in Iran causes oil price increase
Rising oil prices following the US-Israeli war against Iran are fueling new demand for biofuels. The conflict has cut off about 20% of global oil and gas supplies, which usually pass through the Strait of Hormuz. Crude oil prices have risen by more than 30% since late February, before the war began. By contrast, prices for corn, a key biofuel ingredient, have risen just 5%.
Biofuels, made from any organic feedstock, are usually blended with gasoline, or used to replace diesel. They become more economical when fossil fuel prices rise. Biofuels can also help keep prices low and reduce dependence on costly imports of crude oil and fuels.
Countries in Asia, heavily dependent on oil imports from the Middle East, have sought to increase their use of biofuels since the war began. Asia buys about 80% of the oil shipped through the Strait of Hormuz, which has been largely closed to shipping since the conflict began.
Vietnam said in late March it would switch completely to ethanol-blended gasoline from April due to rising energy prices, bringing forward a previous target of June 1. Ethanol is produced mainly from corn or sugar cane.
Indonesia has said it will increase the mandatory blending rate for biodiesel made from palm oil to 50% from 40%. Indonesia is the world's largest producer and exporter of palm oil.
Asian countries are trying to cushion the impact on their economies of rising energy prices caused by the war with measures such as fuel rationing, shorter work weeks and alternate driving days.
Biofuel production can take up a large amount of agricultural output. About 40% of corn in the leading producer, the US, is used to produce ethanol, while the leading sugar producer, Brazil, uses 50% of its sugarcane to produce biofuel.
Rising energy, transport and fertilizer costs, fuelled by the war, have already caused global food prices to rise, reaching a six-month high in March. The rise in biofuel use could potentially push food prices even higher.
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