Refineries, Not Oil Wells, Are Now the World's Diesel Bottleneck

For decades, the world worried about who controlled the oil in the ground. Now the crisis is about who can turn it into diesel — and two simultaneous wars have knocked out the regions that spent the last decade building that capacity.

Diesel prices in the United States surpassed $6 a gallon for the first time last week and kept climbing, hitting $6.45 on Friday. Shortages have appeared at rural gas stations in Brazil, in Libya, and across parts of Africa where countries cannot afford to import the fuel at current prices. The squeeze is rippling through every sector that runs on diesel: freight, farming, and heavy industry.

The cause is a double blow to global refining. The conflict involving Iran has disrupted exports from Kuwait, the United Arab Emirates, Iraq, and Saudi Arabia — countries that collectively more than doubled their diesel exports between 2017 and 2025, when the Middle East overtook North America to become the world's largest diesel-exporting region, accounting for 19 percent of global exports. At the same time, Ukrainian drone strikes have nearly halted Russian refinery exports. According to data compiled by the International Energy Agency, the diesel blocked in the Persian Gulf is roughly three times as large as the supplies missing from Russia compared with pre-war levels.

We are seeing the emergence of a tighter diesel market than we've probably seen in any previous period.— David Martin, Senior Oil Market Analyst, IEA

The Strait of Hormuz is at the center of the Persian Gulf disruption. A September 19 snapshot from maritime monitoring service World Monitor gave the Strait of Hormuz and the Kerch Strait the highest disruption scores of any of the 13 waterways it tracks, each rated 70 out of 100. Escalating Houthi attacks have also limited Saudi Arabia's exports from its Red Sea refineries, cutting off the kingdom's main route to bypass the Strait of Hormuz entirely.

The scale of what has been lost reflects a decade of deliberate investment. Kuwait National Petroleum Company built one of the world's largest refineries at Al-Zour. The UAE expanded capacity at its Ruwais facility. Iraq opened a new refinery at Karbala. Saudi Aramco built two refineries near the Red Sea. Russia, meanwhile, upgraded existing plants, growing diesel exports by one-third between 2017 and 2023. Those projects reshaped global trade flows: Middle Eastern refiners shipped primarily to Asia and Europe, U.S. refiners exported heavily to Europe, and Russia sold to Turkey, India, and China. The wars have short-circuited all of those routes simultaneously.

Western oil companies have not built a new refinery in nearly 30 years, and more than a dozen facilities across the U.S. and Europe have shut down since 2015. The pressure came partly from the same Middle Eastern and Russian expansion that is now offline — state-backed refineries built with employment and fuel security as the primary goals, not financial returns, which undercut margins for private-sector competitors.

We've seen the oil majors effectively reduce their exposure to that sector because the returns on actual capital employed have been poor. The classic phrase we used was: 'How do you make a small fortune? Take a large fortune and build a refinery.'— Alan Gelder, Senior Vice President of Refining, Chemicals and Oil Markets, Wood Mackenzie

That retreat has left the United States as what analysts describe as the producer of last resort for diesel and other refined products. Western refineries are running near capacity and have shifted production toward diesel, but that has not been enough to fill the gap. The difference between the price of crude oil and the price of diesel — a measure of refining profitability — has hit a record high in many markets.

Political pressure is now building in Washington to ban U.S. diesel exports in order to lower domestic prices ahead of the midterm elections. Representative Tim Burchett (R., Tenn.) introduced a bill this week to do so. Senate Majority Leader John Thune (R., S.D.) said he was open to the idea. Analysts warn that a U.S. export ban would likely send prices for the rest of the world soaring, and could prompt other major exporters — China and India — to follow suit. Russia has already sharply restricted exports due to refinery damage. China has limited its refinery exports, and India has imposed an export tax on diesel and gasoline.

China is the one country outside the conflict zones with significant spare refining capacity, but its refiners have deliberately held back, limiting crude purchases and avoiding running facilities at full capacity. According to Alan Gelder of Wood Mackenzie, Beijing appears to be prioritizing energy security over export profits — avoiding actions that would drive up global crude prices, of which China is the world's largest importer.

I think there's an element of energy security, energy resilience. That's probably in aggregate better for them overall rather than allowing their refiners to chase that margin in the export market.— Alan Gelder, Senior Vice President of Refining, Chemicals and Oil Markets, Wood Mackenzie

President Trump this week attributed most of the global diesel price rise to the Russia-Ukraine war rather than the Iran conflict. IEA data, however, points in the other direction: the Persian Gulf disruption is the larger of the two supply shocks by a factor of roughly three. The distinction matters for policy — the two crises call for different responses, and misreading the source of the problem risks misallocating whatever relief measures governments choose to deploy.

The deeper lesson emerging from analyses by the WSJ, McKinsey, and Columbia University's Center on Global Energy Policy is that energy security planning has long focused on crude oil — who produces it, who transports it through which straits — while treating refined products as a downstream afterthought. The current crisis suggests that refineries, not oil fields, are now the critical node in the global energy system, and that the West's long withdrawal from refinery investment has left it structurally exposed to exactly this kind of shock.

Why it matters — Diesel powers freight, farming, and heavy industry worldwide, and the loss of the refining capacity that the Middle East and Russia built over the past decade has created a supply crunch that crude-market fixes — rerouting tankers, drawing down inventories — cannot solve.

Sources differ on Primary cause of global diesel price surge: Mostly caused by the Russia-Ukraine war and Ukrainian attacks on Russian refineries (President Trump, as reported by wsj.com/tradingview.com) vs Persian Gulf disruption is roughly three times larger than the Russian supply gap, making it the dominant factor (IEA data, as reported by wsj.com/tradingview.com)

Reported by wsj.com, mckinsey.com, energypolicy.columbia.edu, tradingview.com, worldmonitor.app