Middle East Conflict Disrupts Global Oil Markets, Tightening Supplies

A prolonged conflict in the Middle East is reshaping global oil markets beyond crude price volatility. According to Wood Mackenzie, refinery disruptions could remove an estimated 1.4 million barrels per day (bpd) from global crude processing capacity in the fourth quarter of 2026.

This development tightens supplies of refined petroleum products across Europe and the United States, where Nigeria and several other African countries source imported fuels. The crisis has fundamentally altered crude trade routes, refining economics, and long-term competitiveness across the world's largest oil-consuming region.

Senior Vice President at Wood Mackenzie, Alan Gelder, said that 'the scale of the disruption to global crude runs was without modern precedent.' Crude oil only becomes usable fuel after it is processed into petrol, diesel, aviation fuel, and petrochemical feedstocks. A reduction of 1.4 million bpd in global crude runs means fewer refined products entering international markets, even if sufficient crude remains available.

The imbalance is particularly evident in diesel markets, where Russian export constraints, declining inventories, and stronger winter heating demand have kept prices elevated. Petrol prices are expected to soften seasonally, but limited supply across the Atlantic Basin is likely to prevent a sharp decline. For countries heavily reliant on imported fuels, the development creates the prospect of sustained high import bills, even if crude prices eventually fall.

Nigeria's Dangote Refinery has admitted that it 'earns import-parity pricing on domestic sales while capturing the freight and logistics premium importers once retained.' The position suggests that Nigerian consumers could continue to face high fuel prices influenced by global market dynamics and the premiums embedded in import-parity pricing.

Wood Mackenzie believes the conflict is accelerating structural changes that will outlast the crisis. Asia-Pacific oil demand is projected to fall by 1.24 million bpd during 2026, with demand not expected to recover to pre-conflict levels until late 2027. Petrochemical feedstocks such as liquefied petroleum gas (LPG) and naphtha have suffered the biggest declines, while transport fuels have proved more resilient.

The consultancy expects refining margins to ease once normal shipping resumes through the Strait of Hormuz, a vital artery for global oil trade. With non-OPEC production expected to outpace demand growth in 2027 and 2028, Wood Mackenzie forecasts Dated Brent could eventually retreat to between $50 and $60 per barrel.

By 2035, nearly 80% of the world's top-performing refineries are expected to be Chinese facilities with extensive petrochemical integration, giving them stronger margins even in lower-price environments. Wood Mackenzie argues that energy efficiency and deeper chemical integration will determine which refineries remain competitive as the global oil market enters a period of slower demand growth.