Refineries Replace Crude Oil as Global Energy Crisis Chokepoint
The global energy crisis has taken a new turn as refineries have become the main chokepoint for energy supplies, surpassing crude oil prices as the primary concern. The Iran and Ukraine wars have exposed a vulnerability in the refining system that converts crude into diesel, jet fuel, and gasoline.
According to Dark Side of the Boom, the world's refining capacity has been severely impacted by the disruptions in Middle Eastern and Russian product exports. Diesel exports from these regions have fallen sharply, leaving little room for replacement barrels. The global energy squeeze is now increasingly a refining problem rather than just a crude oil issue.
The Middle East had become the critical diesel export hub, accounting for 19% of global exports by 2025 after a decade of enormous refinery investment. However, the current disruption has made it difficult to replace this capacity. Western refineries have little room to respond, as US and European plants are already running hard after years of closures and limited new construction.
The simultaneous disruption of Russian and Persian Gulf refining has tightened the diesel market to a degree rarely seen before. US diesel prices have reached $6.45 per gallon, while shortages have appeared in parts of Brazil, Libya, and several African markets unable to compete comfortably for increasingly expensive imports.