Today, the global oil market is hampered. But not by the supply of crude oil, but by the world’s refining capacity, which has become the defining bottleneck for fuel and other oil-derived products.
In the past, during energy shocks, markets were concerned about crude oil production and availability. But today, there is considerably more crude available than refiners can efficiently process. Damage to refineries, shipping disruptions and uncertainty, as well as sanctions and inventory drawdowns, have combined — the perfect storm to create a shortage of refined products rather than the crude oil they come from. The result is somewhat strange: a wide gap between cruise prices and the prices that consumers actually pay for fuel at the pump and for petro-derived products.
Donald Trump Meeting With French President White House Flickr Photo
President Donald Trump addresses members of the media in the James S. Brady Press Briefing Room, Tuesday, January 20, 2026. (Official White House Photo by Joyce N. Boghosian)
The knock-on effects are wide-ranging because the majority of petroleum products — asphalt, plastics, diesel, jet fuel, gasoline, heating oil, lubricants, and other industrial chemicals — depend on refinery capacity, not just on crude oil availability.
The War in Iran
The ongoing war with Iran almost immediately increased geopolitical risk because of the country’s location on the Strait of Hormuz, through which around a fifth of the world’s oil transits. Market prices changed as a consequence of the war and the closure of the Strait, and risks further drove prices, including disruptions to the export potential of Iranian and neighboring Gulf producers.
Brent crude prices were quite volatile, briefly exceeding $100 per barrel before gradually easing. Though there was a temporary recovery, renewed fighting has continued to inject uncertainty into oil prices amid today’s geopolitical tensions. Damage to refining infrastructure throughout the Gulf reduced exports of gasoline, diesel, jet fuel, and other products, even as some crude oil production continues.
The War in Ukraine
Ukraine’s ongoing strike campaign against Russia’s oil and gas infrastructure — what Ukrainian President Volodymyr Zelensky dubbed his country’s “long-range sanctions” regime has targeted Russian refineries, fuel storage, export hubs, and pipeline infrastructure rather than Russian oil wells themselves. Rather than removing crude from the market, Kyiv’s strategy has instead removed gasoline, aviation fuel, diesel, and other products from the market, though crude production continues.
The availability of fuel in Russia — one of the world’s top oil-producing countries — has been a significant consequence of Ukraine’s strike campaign, an effort that has sent thousands of long-range, explosive-laden drones and home-grown cruise missiles raining down on targets throughout Russia.
Diesel has become especially tight. Long lines at the pump and broad restrictions across Russia have forced Russian authorities to take several unusual steps to mitigate the fuel shortage. Fuel imports from Belarus and India have been reported — ironically, the largest share of Indian fuel imports comes from Russia — and environmental regulations for fuel have been relaxed. Russian refineries that produce for the domestic Russian market are allowed to sell less-refined fuel despite the health risks the fuel poses.
The China Connection
China made the unusual decision to reduce crude oil imports, which has had a moderately stabilizing effect on crude oil markets. It was a notable decision for the world’s number two economy, but several factors are responsible for the move.
China has experienced slower industrial growth and weaker construction activity. Diesel demand is consequently lower, a trend aided by the rapid pivot toward electric vehicles and the electrification of freight transportation. Lower refinery activity and restrictions on fuel exports have also reduced China’s import demand. According to Reuters, over the last five years, China averaged 11.5 million barrels of oil per day in imports — a figure that has since April of this year dropped to just 8 million barrels per day.
The United States
The United States has become the world’s stand-in crude oil refiner, and American refineries have increased output. Record amounts of jet fuel and diesel have been refined in the United States this year, and much of it has been exported.
But rather than maximizing gasoline production, many American refiners have shifted, prioritizing jet fuel and diesel, as those products command premium prices due to the current shortage. But domestic gasoline prices have remained relatively high in part because American refiners cannot fully offset the loss of gasoline refining capacity.
The Look Forward
The price of a barrel of crude oil is less reliable as a guide to the cost of fuel and other petroleum products, and a dip in crude prices is not a guarantee of more affordable gasoline, jet fuel, diesel, asphalt, or plastics if refining capacity is crimped. Long-term, refining recovery will depend heavily on reduced wartime disruptions and improvements in transportation and trade.
About the Author: Caleb Larson
Caleb Larson is an American multiformat journalist based in Berlin, Germany. His work covers the intersection of conflict and society, focusing on American foreign policy and European security. He has reported from Germany, Russia, and the United States. Most recently, he covered the war in Ukraine, reporting extensively on the war’s shifting battle lines in the Donbas and writing about its civilian and humanitarian toll. Previously, he worked as a Defense Reporter for POLITICO Europe. You can follow his latest work on X.
