Middle East Refining Shock: Why Fuel Markets May Stay Tight Through 2027

The Middle East is facing a refined-products shock, not only a crude-oil disruption. Kpler estimates that regional refinery runs have dropped from 9.9 million barrels per day (mbd) in February 2026 to about 7.3 mbd—a reduction of roughly 2.6 mbd. Between March and August, the region lost around 4 mbd of refined-product supply, including curtailed refinery output and disrupted LPG and NGL-derived naphtha flows. 4

The implication is significant: even if hostilities ease, fuel markets may remain tight because restoring trade routes is faster than repairing refineries, utilities and related infrastructure.

The supply loss has two distinct components

Kpler attributes the approximately 4 mbd regional refined-product shortfall to two main sources: 4

• About 2.5 mbd from lower refinery output. Refineries were damaged, shut down or unable to operate normally.
• About 1.5 mbd from other supply streams. LPG and NGL-derived naphtha were also disrupted, reducing the availability of feedstocks and products used in fuels and petrochemicals.

This distinction matters because crude availability alone cannot solve the problem. Markets need functioning processing units, suitable feedstocks, export terminals and safe shipping routes to turn crude and NGLs into deliverable gasoline, diesel, jet fuel, LPG and naphtha.

Hormuz turned physical damage into a logistics crisis

The disruption combines damaged infrastructure with impaired evacuation routes. Attacks and precautionary shutdowns affected refineries across the region, including facilities in Saudi Arabia, Bahrain, Kuwait and the United Arab Emirates. Reuters reported that 20 Middle Eastern refineries had been struck or had taken precautionary shutdowns by mid-April, putting more than 2.3 mbd of capacity offline at that point. 2

The Strait of Hormuz compounded the damage by restricting crude intake, product exports and tanker movements. Kpler later warned that the Strait had re-closed while Bab el-Mandeb was also destabilizing, pushing recovery expectations into 2027. 3

LPG and naphtha face an additional vulnerability around Bab el-Mandeb. Kpler said the blockade had materially affected these transits since July, while Saudi Arabia’s Yanbu fractionator normally relies on NGL feed delivered from the east through the Abqaiq–Yanbu pipeline. 17

Why the Gulf is recovering at different speeds

The disruption is not evenly distributed across the region.

Saudi Arabia has more routing flexibility—but not immunity

Saudi Arabia has west-coast infrastructure and can divert some crude flows through the Suez Canal and SUMED pipeline if shipping risks affect Bab el-Mandeb routes. 6 That gives it more logistical options than some neighboring Gulf systems.

However, its west-coast refining and petrochemical operations remain linked to east-to-west feedstock logistics. Kpler notes that Yanbu’s fractionator typically receives NGL feed from the east, meaning alternative export infrastructure does not eliminate the risk to LPG and naphtha supply. 17

Kuwait, Bahrain and the UAE remain exposed to Hormuz

Kuwait, Bahrain and the UAE have large refining systems whose operations and product evacuation are closely tied to Gulf shipping. Refineries including Kuwait’s Mina al-Ahmadi and Mina Abdullah, Bahrain’s Sitra facility and major UAE assets were among the systems affected by attacks, shutdowns or export constraints. 25

Their recovery therefore depends on both physical repairs and reliable maritime access. Restoring one without the other will not return product exports to normal.

Oman is geographically less exposed, but scale remains a constraint

Oman sits outside the Strait of Hormuz, which gives it a relative geographic advantage. But the supplied Kpler evidence does not quantify an Oman-specific outage or show that Omani facilities can replace the lost volume and product mix from the wider Gulf system. Any claim that Oman can fully offset the regional shortfall would therefore go beyond the available evidence.

Kpler sees a two-stage recovery

Kpler’s recovery outlook has two phases. The first could begin in late Q4 2026 if shipping access and logistics improve. Surviving refineries would then be able to raise throughput and move products more reliably. 46

The second phase is slower: damaged processing units, utilities and supporting infrastructure must be repaired before the region can approach pre-war operating levels. Kpler does not expect full normalization before at least Q2 2027. 46

That timeline remains conditional. Renewed restrictions in Hormuz or continued insecurity around Bab el-Mandeb could delay the rebound further. 3

Global refiners are running harder, but cannot replace the lost system

Refiners outside the conflict zone are operating near practical limits to compensate for lost Middle Eastern, Asian and Russian supply. Kpler describes this as a two-speed global refining market: western and other unaffected facilities are running hard while the Middle East operates well below pre-war levels. 5

That imbalance supports very strong refining margins and tightens markets for diesel, gasoline, jet fuel, LPG and naphtha. Reuters said the disruption could keep diesel and gasoline prices elevated for years, while citing International Energy Agency estimates that more than 20% of Middle Eastern refining capacity had been knocked out. 1

But high margins do not create new refining capacity overnight. They encourage existing plants to maximize output, yet they cannot immediately replace damaged units, restore disrupted feedstock systems or make unsafe shipping lanes reliable.

The shock is consuming the market’s buffers

The market initially absorbed the disruption through surplus crude, oil already in transit and floating storage. Kpler later said those buffers were largely depleted, leaving commercial inventory draws as the remaining principal shock absorber. 11

That makes the duration of the outage especially important. A short disruption can be managed through inventories and rerouted cargoes. A prolonged one forces refiners and fuel buyers to compete for increasingly scarce barrels and products, increasing the risk of sustained price volatility.

Shipping, insurance and supply chains feel the secondary effects

Restricted Hormuz traffic reduces tanker movements, raises voyage and insurance risks, complicates vessel scheduling and disrupts product arbitrage. Cargoes may need to take longer or less efficient routes, adding cost and time to deliveries. 356

Those costs can spread beyond oil markets. More expensive transport and refined fuels affect freight, road transport, petrochemicals and food distribution, adding to broader inflation and supply-chain risk. The available evidence supports the direction of these effects, but does not quantify their country-level inflation impact. 146

Why a ceasefire does not immediately restore fuel supply

A ceasefire can reduce the risk of new attacks, but it does not instantly repair a refinery or reopen a shipping corridor. The IEA noted that even after a ceasefire announcement, it remained unclear whether the pause would lead to lasting peace and a return to regular Strait of Hormuz shipping flows. 9

That is the central lesson of Kpler’s analysis: refined-product markets depend on both capacity and connectivity. Damaged plants limit production; unsafe waterways limit delivery. Until both recover, the Middle East’s fuel shortfall can continue to pressure global inventories, margins, freight costs and consumer prices.