Escalating conflicts across the Middle East are putting renewed pressure on global energy markets, with disruptions around the Strait of Hormuz and Bab el-Mandeb, damage to Saudi infrastructure and attacks on Russian refineries raising concerns about a second major energy shock in less than five years.
The latest disruptions have hit several key links in the global fuel supply chain simultaneously. Traffic through the Strait of Hormuz, a critical route for oil and gas exports from the Persian Gulf, has fallen sharply, with only a limited number of vessels continuing to transit, some under US naval escort.
Saudi Arabia has also faced disruption after attacks by Iran-backed militias forced the temporary closure of its East-West pipeline, an alternative route for exports that bypasses Hormuz. Reuters reported on September 24 that operations had resumed, with tankers waiting to load.
At the same time, Yemen’s Houthi movement has expanded its control around Bab el-Mandeb, another major maritime chokepoint. Russia is also dealing with extensive damage to its refining capacity following Ukrainian drone attacks and is expected to extend restrictions on diesel exports.
The combination of disruptions has raised concerns about the availability of refined fuels, particularly diesel.
Diesel emerges as the main concern
Francisco Blanch, global head of commodities and derivatives at Bank of America, told El País that the situation had deteriorated significantly over the previous two weeks.
“The disorder in the Middle East is extreme, and there is neither enough crude on the market or, above all, enough refineries available to process it,” Blanch said.
The focus has shifted from jet fuel, which was the main concern earlier in the year, to diesel — echoing the disruption seen in the early stages of Russia’s invasion of Ukraine.
Russia, a major historical supplier to European markets, currently has a large portion of its refining capacity offline. Saudi Arabia has also reduced crude and fuel shipments to Europe, with several major refineries operating below capacity.
“Neither diesel nor heating oil have much of a short-term solution,” Blanch said, warning that supply problems could become more severe if supply chains are not restored by the end of the year.
Energy analysts are increasingly concerned that Europe could be particularly exposed because of its reliance on imported fuels.
Refineries forced to change their output
Diesel, gasoline and jet fuel are closely linked because refineries can adjust their production mix depending on market conditions.
In recent months, some refineries that had prioritised jet fuel have shifted production towards diesel, helping to tighten supplies of other petroleum products and pushing prices higher across the market.
Another potential risk would be a decision by Washington to restrict US fossil fuel exports. Blanch warned that such a move could lower prices for American consumers but damage the wider US economy, which has benefited significantly from energy exports.
Analysts at Eurasia Group have also warned that Europe and Latin America could be particularly vulnerable to restrictions on US fuel exports because of their reliance on American supplies.
Despite the sharp increase in prices, analysts say several factors have so far prevented a full-scale global energy crisis.
Global oil supplies were relatively abundant before the latest Middle East escalation, while electrification is gradually reducing demand for gasoline and diesel. Strategic reserves were also relatively high at the start of the crisis, although they have fallen following emergency use.
In addition, the global economy is less dependent on oil and refined products than it was in previous decades, reducing the impact of high prices.
Europe faces additional pressure from LNG
Natural gas presents another potential source of risk for Europe.
Qatar, one of the world’s largest LNG exporters, has been hit by the disruption around Hormuz and has cancelled a significant portion of its sales to Europe and Asia, citing force majeure.
European LNG inventories are now at their lowest level in more than a decade for this point in the year, according to analysts. Stocks are roughly 20 percentage points below their usual seasonal level, increasing concerns ahead of winter.
“What we hope is that this winter, like the last, is not too cold in Europe. Because if it is, we could have serious problems,” said Ana Maria Jaller-Makarewicz of the Institute for Energy Economics and Financial Analysis.
The current situation differs from the immediate shock of 2022 and 2023, when Russia’s invasion of Ukraine triggered a rapid surge in energy prices and fears of shortages. Analysts instead describe the current environment as a slower-moving crisis.
Qatar’s LNG supplies are constrained, Norwegian exports are close to capacity and competition with Asian buyers has intensified.
European gas prices above €70 per megawatt hour have already pushed up electricity costs, although they remain well below the levels above €300 reached during the energy crisis four years ago.
Europe may therefore have to pay a premium to attract LNG cargoes originally destined for other markets. With winter approaching and several major supply routes under pressure, analysts say uncertainty remains high and there is no immediate solution to the region’s growing energy vulnerability.
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