Oil Refineries Become Prime Targets as Global Fuel Shortage Worsens

Ten years ago, European countries were closing refineries while Gulf oil states were building new ones. Now, many of these refineries have been damaged in the war between the U.S. and Israel, and Iran. Fuel output from one of the biggest refining regions is not going to be coming back soon. Neither is full refining capacity from one of the world’s top fuel exporters, Russia.

Earlier this week, the secretary-general of the International Energy Agency Fatih Birol warned that crude oil and natural gas prices will remain elevated next year as well, “and the prices for products are even much higher.” Indeed, the prices for products are even much higher, because while producing countries could—and have—found workarounds for their crude, such workarounds are not possible for refined product because with them, it’s not a matter of logistics. It is a matter of present or absent refineries.

The Ukrainian army has launched more than 100 drone attacks on Russian refineries over the past few months. Some 30 refineries have been targeted, representing 80% of the country’s total refining capacity, according to a Wall Street Journal report from this week. This capacity stood at 6.1 million barrels daily before the attacks. Now, market consultancy Industrial Info Resources estimates that the damaged refineries’ combined capacity has fallen to 1.6 million barrels daily.

For the president of the United States—the world’s largest oil and gas exporter—the way out was to strike a deal with Russia’s president for the delivery of 300,000 tons of diesel fuel to the U.S. and international markets next month. The diesel is already on its way, but analysts question the volume’s significance. The initial 300,000 tons is equal to 75,000 barrels daily, which is a drop in the bucket of even the U.S. fuel demand, let alone the whole world’s.

Russia, meanwhile, has been repairing its refineries and diesel fuel production is up, Reuters reported earlier this week, citing unnamed industry sources. According to them, refining rates were up by 25% between the start of October and the second half of the month, to some 5 million barrels daily. Citing deputy Prime Minister Alexander Novak, the publication said the ramp-up was made possible by the fact the refineries were being repaired with locally manufactured equipment. However, ramping up is not the same as a return to normal and the danger of more Ukrainian attacks remains—just like the danger of Iranian attacks on Gulf refineries.

President Trump threatened earlier this month to restart hostilities against Iran after the midterm elections on November 3. Indeed, the Wall Street Journal reported this week that Washington had warned its Gulf allies to prepare for “a short, intense military campaign after the U.S. midterm elections,” according to unnamed sources. This means that Iran will retaliate, and refineries in the region would be among the obvious targets.

The world has a refinery shortage problem. This is not a problem that is easy to solve by just building more or ramping up processing rates at the available refineries. This is what U.S. refiners have been doing since the fuel squeeze began and still a gap remains between demand and supply because of all those refineries taken down by military action.

While some have predicted this would accelerate the shift to electrified transport, most recently the IEA’s Birol, the fact that this gap between demand and supply for fuels exists is proof that this would be easier said than done—and it would take longer than many may hope. In the meantime, the fuel supply situation will remain tense for a lot of countries around the world, and especially those that allowed their refineries to be shut down in anticipation of the Age of Electricity, only to find out now we are still very much in the Age of Combustible Fuels—and we are short on those.

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