The Iran war energy crisis is just getting started

Meanwhile, the Economic Times daily newspaper is available online now.

Key points

• (Catch all the Business News, Breaking News and Latest News Updates on The Economic Times.).
• China boosts imports of Russian crude, stymieing India's refiners The loss of Gulf crude, in turn, led plenty of refiners, particularly in Asia, to curtail operations.
• What if a diplomatic breakthrough between Washington and Tehran permanently reopens the Strait of Hormuz?
• European diesel cracks have more than tripled since February to above $75 a barrel.
• Iran war energy crisisdiesel and gasoline pricesglobal oil refining industryenergy inflation shockMiddle East oil suppliesglobal fuel productionrefining margins Europerefining capacityconsumer energy costs.

Meanwhile, the Economic Times daily newspaper is available online now. The Iran war energy crisis is just getting began. The Iran war energy crisis is just getting began. By Ron Bousso, ReutersLast Updated: Aug 20, 2026, 12: 48: 00 PM IST.

In practice, the Iran war has severely impacted global oil refining, causing diesel and gasoline rates to remain elevated. Refined product rates have surged significantly, unlike crude oil benchmarks. Disruptions have depleted fuel stockpiles, creating a substantial shortfall in global production. This situation suggests a prolonged period of energy-driven inflation for consumers and businesses. Notably, the global energy crisis impacting economies is only just beginning.

Meanwhile, the Iran war has pushed the global oil refining industry to the brink, signalling that diesel and gasoline rates may remain elevated for years. Accord or no agreement, the global energy inflation shock is far from over. While oil markets adapted remarkably well to the abrupt loss of a fifth of global crude supplies from the Middle East during the conflict, workarounds for the refining industry have been far more limited. The divergence between crude and fuel rates tells the story. Benchmark Brent crude oil is at present around $90 a barrel. Even though that is up regarding 25% from levels at the outbreak of the conflict on February 28, it is a significant retreat from the wartime peak at $118. Refined products have not enjoyed the same relief. While U.S. Gasoline costs have climbed around 60%, european diesel rates have surged more than 70% since the war began. This reflects a dramatic decline in refining output. While fuel exports remain suppressed due to the closure of the Strait of Hormuz, the war knocked out more ‌than 20% of the Middle ⁠East's 9.6 million barrels ⁠per day of refining capacity, according to the International Energy Agency.

China boosts imports of Russian crude, stymieing India's refiners The loss of Gulf crude, in turn, led plenty of refiners, particularly in Asia, to curtail operations. That strain was then amplified by months of relentless Ukrainian strikes on Russian energy infrastructure. These attacks have cut Russia's refining throughput by almost 30% to below 4 million bpd in recent months, forcing Moscow to ban diesel exports in July. Meanwhile, diesel refining margins in Europe, Asia and the U.S. Have surged to unprecedented levels. Live Events.

European diesel cracks have more than tripled since February to above $75 a barrel. U.S. Diesel margins have climbed more than 140%, reaching a record $100 earlier this week. The crisis has been mitigated somewhat by pre-war fuel stockpiles – but that buffer is essentially gone. Global oil stocks fell at a rate of 3.5 million bpd between March and July, equivalent to more than 3% of global oil demand, and are projected to continue declining until year-end, according to the U.S. Energy Information Administration. While gasoline stocks ⁠are at their ‌weakest seasonal level since 2012, U.S. Diesel inventories are at their lowest for this time of year in three decades. A GAPING HOLE.

Taken together, the disruptions have created a hole in global fuel production that the industry is struggling to fill. Global refinery runs in the second quarter were 5.1 million bpd lower than a year earlier, according to the IEA. Sky-high rates additionally reduced demand among businesses and consumers, but not by enough to fully offset the supply crunch. Demand for refined ⁠products last quarter fell by 4 million bpd, leaving a more than 1 million bpd shortfall. In practice, the balance is projected to deteriorate further in the third quarter. While demand is projected to decline by just 2.4 million bpd.: Indian, US fuel exporters reaping bonanza against the backdrop of oil supply uncertainty due to wars These projections remain highly uncertain, given the fluid geopolitical situation in both the Middle East and Russia, refinery runs are projected to be 4.1 million bpd lower year-on-year. But the direction is clear: fuel supply is shrinking faster than demand. INFLATIONARY PRESSURE.

What if a diplomatic breakthrough between Washington and Tehran permanently reopens the Strait of Hormuz? While that would probable lead to a plunge in crude costs, it probably would not deliver quick relief in the refined product market. That's since more than 20 refineries throughout the Gulf suffered damage during the war, plenty of of which will require extensive repairs. Lead times for crucial equipment – including compressors, heat exchangers and specialised catalysts – were already stretched before the conflict began, making a speedy recovery implausible. China's response to the tightening supplies will additionally be critical. The world's second-largest refiner sharply reduced its processing rates and curtailed fuel exports during the war. Demand destruction could prove more significant than at present projected as consumers and businesses pull back on spending in the face of eye-watering energy bills. But ‌the urgent need to replenish – and in some cases expand – global fuel inventories should add upward pressure to refining demand, potentially for years. This dynamic raises the prospect of a sustained bout of energy-driven inflation this winter and beyond. Recent inflation data is already pointing in that direction. U.S. Consumer rates rose 3.4% in July from a year earlier, driven in substantial part by a 14.7% growth in energy costs, including a 24.6% jump in gasoline costs. While Japan's producer cost index rose 7.2% in July.: Russia to receive almost 270, 000 tons of refined fuel from Asia in August, data indicates Plenty of Wall Street analysts and economists still assume the energy rate spike will be a short-term phenomenon unlikely to feed through to core inflation, euro-zone inflation accelerated ⁠to 2.9%, led by a 10% rise in energy costs. But if the refined product crisis is as serious as current data suggests, that assumption may be too optimistic. This is especially true in Europe and Asia, where liquefied natural gas rates have additionally spiked. The U.S. Has not been immune to rising energy rates, and the risk to current projections through year-end is clearly tilted to the upside. U.S. President Donald Trump, who has created lowering the cost of living a central pillar of his second term, has seemingly acknowledged this, warning Americans last week to prepare for higher energy costs. Almost six months into the Iran war, the world appears to be witnessing a slow-motion crash. While disruptions caused by the war continue to strain the overstressed refining system, the fuel market's safety buffer has been stripped away as inventories have been depleted. The energy crisis that really matters to the global economy is just getting began. (The opinions expressed here are those of Ron Bousso, a columnist for Reuters.) Add Now!

In short, the Iran war energy crisis is just getting started is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.