Columbia analysis warns refined fuel shortage poses greater threat than crude oil disruption

Six months after the U.S.-Iran war shuttered the Strait of Hormuz, the world's oil system faces a paradox: crude prices have stabilized, but the fuels that consumers actually use — diesel, jet fuel, and gasoline — are in severe shortage. A new analysis published Friday by Columbia University's Center on Global Energy Policy warns that the crisis exposes a fundamental blind spot in the energy security architecture built in the 1970s around crude oil reserves.energypolicy.columbia

The commentary finds that U.S. diesel crack spreads — the margin between crude and refined diesel — jumped above $100 per barrel in mid-August, an unprecedented level atop roughly $85 WTI crude. Globally, finished transportation fuels are trading between $150 and $190 per barrel.energypolicy.columbia

A Perfect Storm in Refining

Four simultaneous shocks are behind the crunch. First, Middle Eastern refining capacity, representing 11 percent of the global total, saw runs fall 27 percent as the Hormuz closure and direct attacks on Gulf refineries bottled up or damaged facilities. Unlike crude oil, which has partially resumed flowing via "dark transits" with tracking signals disabled, refined product shipments have shown no meaningful recovery due to more complex logistics.energypolicy.columbia

Second, Ukraine's intensifying drone campaign has struck Russian refineries more than 100 times since August 2025, according to the IEA. Russia — formerly the world's second-largest diesel exporter — has now extended its diesel export ban through at least September, with discussions underway to maintain restrictions through year-end, Reuters Thomson Reuters Corporation ↗ 1.38% reported on August 25.reuters+1

Third, China holds the world's largest pool of spare refining capacity but has restricted exports through quotas, with state-owned refiners running at only 73-74 percent utilization and independent "teapot" refineries at 50 percent.energypolicy.columbia

The combined effect: global seaborne diesel trade is down roughly 20 percent and jet fuel trade has fallen by about one-third compared to last year, according to IEA data cited in the Columbia analysis.energypolicy.columbia

Costs Mounting for Consumers

The UK's Energy and Climate Intelligence Unit separately calculated on Friday that the conflict has already added an estimated £9.8 billion to British energy and road transport costs. For every additional week the war continues, UK households and businesses face approximately £190 million in excess gas and electricity costs, with the full impact expected to feed through into bills next year.eciu

"The latest volatility in these global gas and oil markets shows how exposed households and businesses remain to geopolitical shocks," said Jess Ralston, Head of Energy at ECIU.eciu

An Outdated Playbook

The Columbia analysis argues that the IEA's March decision to release 400 million barrels from strategic reserves — the largest coordinated release in the agency's history — stabilized crude markets but could not address the refining bottleneck. Seventy-two percent of the release was crude oil, which cannot substitute for damaged hydrocrackers or solve fuel-specification mismatches.energypolicy.columbia

With OECD refining capacity having declined by nearly 2 million barrels per day over the past decade, and the Northern Hemisphere heading into winter with distillate inventories well below five-year averages, the authors urge policymakers to treat refining capacity as a first-order energy security variable — not a "downstream afterthought."energypolicy.columbia