Key Highlights

  • Global refined product output stands at 79 million barrels per day, still 7 million below pre-war levels.
  • Refined product prices are between 35% and 60% higher than before the war began.
  • Iranian strikes have knocked out 1.4 million barrels per day of Gulf refining capacity since the conflict began.
  • Russian refineries processed 3.8 million barrels per day in June, down 1.5 million from January levels.

Crude Supply Outpaces Demand, but Refined Products Remain Scarce

President Trump said on July 13th that America would reinstate its naval blockade on Iran and charge a 20% fee on cargo passing through the Strait of Hormuz, sending Brent crude jumping 10% to 83 dollars a barrel. That night, America launched air strikes on Iran, which responded by striking two Emirati tankers with missiles. Yet Brent remains a quarter below its April peak, even as the June truce appears effectively dead and Hormuz traffic has nearly ceased.

One reason prices have not risen further is that oil markets still consider it likely Trump will eventually back down given November's midterm elections. On July 14th he dropped plans for the transit fee, to be replaced by unspecified Gulf investments in America instead. A larger factor behind the muted crude price reaction is that global crude supply currently outpaces demand, not because production has surged, but because idled refineries are consuming less crude. Global refined product output stands at 79 million barrels per day, still 7 million barrels below pre-war levels.

Refined Fuel Prices Surge as Crude Sits Idle

Even as crude remains relatively abundant, refined products have grown scarce, with prices between 35% and 60% higher than before the war, and traders wagering billions that prices will climb further still. The International Energy Agency warns the crunch will worsen considerably unless flows through Hormuz resume. European diesel refining margins have reached their highest level since at least 2011, American crack spreads measuring the profitability of converting crude into petrol and diesel are hitting record levels, and a barrel of jet fuel in Asia now fetches around 150 dollars, up from roughly 100 dollars before the war.

Gulf Refining Capacity Has Been Severely Damaged

The severity of the ongoing crunch depends heavily on export prospects from three regions: the Gulf, China and Russia, all of which remain highly uncertain. The Gulf was historically the largest exporter of middle distillates such as diesel and jet fuel, but with Hormuz mostly closed since February, supplies have collapsed and refinery throughput has dropped by 30%, or 3 million barrels per day. While crude can bypass the strait via pipeline, no equivalent route exists for refined products, and although exports picked up modestly during a partial Hormuz reopening, currently only Iranian crude is managing to exit the region.

Compounding the disruption, Iranian strikes have knocked out 1.4 million barrels per day of Gulf refining capacity since the war began, with the full extent of the damage still unknown. One industry analyst expects fuel exports to recover within three to four months, contingent on Hormuz reopening.

China and Russia Add Further Strain to Global Supply

Chinese refineries are processing 3 million barrels per day less than in February, after the government prohibited state-owned refiners from selling refined products abroad during much of the conflict, a ban lifted in July on the condition that refiners' stocks not fall below pre-war levels from late February. China's major oil firms have tentatively raised their collective export target to roughly two-thirds of year-earlier levels, though rising Hormuz tensions mean a full lifting of export restrictions now appears considerably further off, with the possibility of a complete ban returning at any point, according to one trading firm executive.

Russia's refineries, meanwhile, face an intensifying assault from Ukraine's drone campaign, which has escalated sharply since April, striking more targets more frequently and reaching further into Russian territory, including a strike on a mega-plant in western Siberia on July 6th, 2,500 kilometres from the front line. These strikes have targeted sophisticated refining units that upgrade crude fractions into high-value products, some of which can take months to repair. In June, Russian refineries processed 3.8 million barrels per day, down 1.5 million from January levels, according to JPMorgan Chase estimates, causing significant domestic shortages during peak holiday season, with drivers in some regions queuing for days, rationed sales, and pump prices up to 50% above normal, alongside disruption to farming, utilities and logistics. Russia typically exports nearly half its diesel output and almost all its fuel oil, and stands as the world's second-largest diesel supplier and leading fuel oil exporter, but exports have slumped and the government has prohibited further diesel shipments.

Ripple Effects Extend Across Global Fuel Markets

The impact of Russia's export restrictions extends well beyond buyers willing to navigate Western sanctions. Turkey, the primary purchaser of Russian diesel, will now retain its refined diesel domestically, starving the broader Mediterranean market, according to one ship-tracking analyst, while Brazil has begun replacing Russian diesel with American supply, further squeezing Atlantic buyers. This disruption may ripple across other fuel products as well, as refiners increasingly prioritise diesel output over jet fuel and petrol production, according to one industry analyst.

Conclusion

Should fighting in the Gulf cease and Hormuz reopen reliably, alongside a resurgence in Asian refining capacity and recovery in Russian output, supply could plausibly return to more normal levels by the end of summer, though these represent substantial uncertainties rather than assured outcomes. A less favourable scenario would force America, the world's swing exporter, and other importers to draw down already low inventories, eventually pushing refined product prices even higher, curbing demand and prompting refiners to increase output, which would in turn likely push crude prices higher as well. The broader mood of motorists across America and Europe remains tied to the outcome of conflicts unfolding thousands of miles from their local pumps.