The Iran war has pushed the global oil refining industry to the brink, signalling that diesel and gasoline prices may remain elevated for years. Deal or no deal, the global energy inflation shock is far from over. The divergence between crude and fuel prices tells the story. Benchmark Brent crude oil is currently around $90 a barrel. Even though that is up about 25 per cent 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.
European diesel prices have surged more than 70 per cent since the war began, while US gasoline prices have climbed around 60 per cent. This reflects a dramatic decline in refining output. The war knocked out more than 20 per cent of the Middle East's 9.6 million barrels per day of refining capacity, according to the International Energy Agency, while fuel exports remain suppressed due to the closure of the Strait of Hormuz.
The loss of Gulf crude, in turn, led many 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 nearly 30 per cent 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 US have surged to unprecedented levels. European diesel cracks have more than tripled since February to above $75 a barrel. US diesel margins have climbed more than 140 per cent, reaching a record $100 earlier this week.