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Crude Flows Resume While Refined Fuel Markets Remain Constricted
Seven months after the Iran war initially shut the Strait of Hormuz, crude oil shipments through the strait have returned to prewar baselines of approximately 13.5 million barrels a day. This recovery marks a significant shift in the availability of raw materials, yet it has not translated into relief for refined fuel markets.
Shipments of diesel, jet fuel, and other refined products through the same waterway tell a different story. These shipments are currently running at about 677,000 barrels a day, which is less than a fifth of the prewar level of 3.6 million barrels a day. The disparity between raw crude availability and refined product scarcity has driven Brent crude prices into the high $90s range.
The impact on consumer markets has been severe. European diesel hit a record €2.24 a litre, while US diesel prices broke $200 a barrel, representing a 94% increase above prewar levels. In Washington, officials are currently debating a ban on diesel exports to manage domestic supply constraints.
Infrastructure Damage and Production Declines
The initial shutdown of flows through the Hormuz strait occurred within days of the Iran war beginning on 28 February, causing volumes to fall to less than 10% of prewar levels. In response to the immediate crisis, the International Energy Agency conducted its largest-ever emergency release of 400 million barrels.
Despite the return of crude flows, physical infrastructure damage continues to limit refining output. Bahrain’s Sitra refinery declared force majeure during the conflict, and Qatar’s Pearl gas-to-liquids plant was damaged at Ras Laffan. Consequently, Gulf refinery runs fell from 9.9 million barrels a day before the war to 7.3 million in August. A full recovery of this capacity is not expected before the second quarter of 2027.
The International Energy Agency’s September Oil Market Report noted that Gulf net exports of diesel and gasoil were just 390,000 barrels a day in August, amounting to only a quarter of prewar levels. This data underscores the persistent bottleneck in converting available crude into usable fuel products.
Global Refining Capacity Constraints
The disconnect between raw material availability and finished product scarcity is rooted in structural limitations within the global refining sector. Nikhil Agarwal of Globestar Energy stated that while crude is globally surplus, there is no refining capacity available to refine it and bring it to market.
This constraint is exacerbated by significant closures in Western markets. Europe closed more than 370,000 barrels a day of its own refining capacity in 2025, including Shell’s Wesseling plant in Germany and Grangemouth in Scotland. These closures have reduced the ability of traditional refining hubs to absorb excess crude or compensate for Middle Eastern shortfalls.
Meanwhile, supply-side shocks have further tightened global availability. Ukrainian drone strikes have reduced Russian refinery output from roughly 5.5 to 3.5 million barrels a day. Moscow banned diesel exports for most of July before extending the ban, removing another potential source of global supply.
Strategic Shifts and Regional Adaptations
In response to the disruption of maritime routes, logistical patterns have shifted dramatically. Today 40% of Gulf crude bypasses Hormuz through pipelines, up from 17% before the war. This infrastructure adaptation has helped maintain crude flows but has not fully resolved the refined product deficit.
Domestic refining activity in the United States has intensified to meet demand. American refineries were running at 97.4% of capacity in late August, the highest in nearly eight years. The US Gulf Coast has shipped more than 1.5 million barrels a day of distillates for weeks, even as domestic stocks fell.
The concentration of refining power remains heavily skewed toward Asia and North America. According to the Energy Institute’s Statistical Review, China (18.8 million barrels a day) and the United States (18.2 million) together account for more than a third of the world’s 103.8 million barrels of refining capacity. This geographic concentration means that disruptions in key transit points like Hormuz have outsized effects on global pricing and availability.
