Global oil market strain shifts from Hormuz to Russian refinery shortages

Oil prices have risen sharply after concerns that Iran could disrupt shipping through the Strait of Hormuz, but the increase has been less pronounced than expected. Analysts note that a significant share of daily oil shipments now bypass the strait via pipelines, while non-Gulf producers such as Venezuela have boosted output and China has cut imports. At the same time, global inventories have been drawn down to meet demand.

More importantly, the price that consumers pay for gasoline and diesel – the “effective” oil price – has climbed far more than the benchmark crude price. Using a conversion factor that equates three barrels of crude to two barrels of gasoline and one barrel of diesel, the effective price has risen about $75 per barrel, compared with roughly $45 for crude. This higher consumer price has suppressed demand despite the modest recovery in crude prices.

The underlying cause of the elevated consumer prices is a worldwide shortage of refining capacity. The war in Ukraine has damaged Russian refineries, which previously supplied a large share of global gasoline and diesel. According to industry estimates, about 10% of the world’s refining capacity is currently offline. The loss of Russian refined-product exports, combined with reduced output from the Persian Gulf, has tightened supplies.

Because of this refining bottleneck, reopening the Strait of Hormuz would add more crude oil to the market but would not immediately translate into lower fuel prices, as the limited refining infrastructure cannot process the additional supply. Consequently, analysts expect continued pressure on gasoline and diesel prices and persistent inflationary effects.

"The effective price to consumers has risen substantially more than the crude price, keeping demand low," said energy analyst Javier Blas.

The situation underscores how geopolitical conflicts beyond the Middle East are influencing global energy markets.