Why the Iran War Is Causing a Global Fuel Crisis Even as Oil Prices Fall

The Iran war has exposed a vulnerability in the global energy system: the world can have access to some crude oil and still run short of the fuels people and businesses actually use. Diesel, gasoline, jet fuel and LPG must be processed, stored and transported through an infrastructure network that has been disrupted in several places at once.

That is why the current shock looks different from a conventional oil-price spike. Brent crude has fallen back to around $90 per barrel from its wartime peak near $118, yet refined-fuel prices and refining margins remain exceptionally high.

The central problem is lost refining capacity

More than 20% of the Middle East’s 9.6 million-barrel-per-day refining capacity was knocked out during the conflict, according to reporting citing the International Energy Agency. Reuters separately reported that 20 Middle Eastern refineries had been struck or forced into precautionary shutdowns, taking more than 2.3 million barrels per day offline by mid-April.

The damage matters because refineries convert crude into usable products. A refinery outage therefore removes diesel, gasoline, jet fuel and other products from the market even if crude remains available elsewhere. The International Energy Agency estimated that Middle Eastern processing was 2.9 million barrels per day below pre-war levels in the second quarter and would remain 2.2 million barrels per day lower in the third quarter.

The Strait of Hormuz compounds the problem. The waterway is a critical route for Gulf energy exports, and shipping traffic fell to well below 10% of normal at one point after Iran threatened and attacked commercial vessels. Insurance costs and safety concerns made ordinary commercial transit difficult, effectively restricting the movement of crude, LPG and refined products.

Russia adds a second major supply loss

The Middle Eastern disruption arrived alongside Ukrainian attacks on Russian energy infrastructure. Russian refinery throughput fell toward a two-decade low, while Moscow’s restrictions on diesel and other refined-product exports removed another important source of supply from an already tight market.

These disruptions reinforce one another. Asian refiners have struggled to secure Gulf crude, Middle Eastern export refineries have not fully restarted, and Russian processing and exports remain constrained. The result is a shortage of conversion capacity and export availability, not simply a shortage of oil in the ground.

Demand has fallen—but not enough

Global refinery runs were about 5.1 million barrels per day lower year over year in the second quarter, according to Reuters’ summary of IEA data. Demand also weakened, but by less than supply. The gap was filled by inventories: global oil stocks declined at a rate of about 3.5 million barrels per day from March through July. U.S. diesel inventories reached their lowest seasonal level in roughly three decades.

Those depleted stocks are a warning sign. Even if fighting eases, refiners must first restore damaged plants, secure feedstock, move products through safer shipping routes and rebuild inventories. That process is slower than the movement of crude futures, which helps explain why fuel markets can remain tight after headline oil prices retreat.

Why diesel and gasoline prices have detached from crude

The market is now pricing the scarcity of products rather than only the price of crude. European diesel prices have risen by more than 70% since the start of the war, while U.S. gasoline prices are reported to be about 60% higher. Reuters has also reported record or near-record European gasoil premiums as refinery attacks cut the supply of fuel available to consumers.

Diesel is particularly exposed because it powers freight, construction, agriculture, generators and industrial equipment. Higher diesel costs can therefore spread through transport, food distribution and manufacturing even when gasoline receives more attention in consumer headlines.

Africa faces a clean-cooking setback

The Hormuz disruption has also hit LPG, a key fuel in many clean-cooking programmes. Within three weeks of the conflict’s start, the Asian propane benchmark rose 53%, while the European large-cargo benchmark rose 64%.

For households that rely on refillable LPG cylinders, a sudden price increase can make clean cooking unaffordable or less reliable. Families may stretch the time between refills or return to charcoal, kerosene or wood. That threatens not only household budgets but also progress on reducing indoor air pollution, fuel-gathering burdens and pressure on forests.

The effect is most severe in import-dependent markets, where higher international fuel and shipping costs pass through quickly to consumers. African governments must choose between allowing prices to rise, which worsens household hardship and inflation, or expanding subsidies, which increases pressure on public finances. Fuel-price increases have already been reported across several African countries.

The wider inflation risk

The fuel shock can reach the broader economy through several channels:

• Households: Petrol, LPG and heating costs reduce disposable income.
• Transport and food: Diesel raises the cost of moving food and goods.
• Industry: Jet fuel, diesel and other inputs increase operating costs.
• Governments: Subsidies become more expensive just as inflation puts pressure on public spending.

The risk is not necessarily a return to the highest crude prices seen during the war. It is a prolonged period in which refined products remain expensive because several major supply hubs are operating below normal capacity.

Can a shipping corridor bring quick relief?

Reports describe a U.S.-protected corridor moving a limited number of tankers through Hormuz, including an operation in which 15–20 tankers reportedly transit nightly and around 10 million barrels per day are moved out of the strait. Other shipping data show traffic still roughly 90% below its pre-war daily average in August.

Taken together, the reports suggest partial and operationally sensitive access—not a return to normal commercial shipping. A corridor could reduce the risk of an immediate supply collapse and help clear stranded cargoes, but it cannot instantly repair refineries, restore LPG trade, or replenish diesel and jet-fuel stocks.

What would meaningful relief require?

A durable improvement would likely require several developments at once: sustained safe passage through Hormuz, no further attacks on Middle Eastern or Russian energy infrastructure, the restart of damaged refineries, higher runs at unaffected Asian plants and enough time to rebuild inventories.

That is why the refined-fuel crisis may outlast any temporary fall in Brent crude. Until processing capacity, shipping routes and stockpiles recover together, the world can continue to experience expensive and scarce diesel, gasoline, jet fuel and LPG—even with a comparatively calmer crude-oil market.