Escalating war with Iran threatens global fuel supply recovery
2026-07-23 00:34:14
Analysts point out that Asian refineries that had anticipated a stable supply of Middle Eastern crude oil in August are now facing serious delivery delays due to the renewed and drastic deterioration of the situation in the Middle East. The sudden escalation of geopolitical conflict has completely disrupted the regional energy trade rhythm and shattered optimistic expectations for a short-term market recovery. This could not only hinder their plans to increase crude oil processing capacity in the coming weeks, causing a significant delay in planned capacity releases and upgrades, but could also trigger a chain reaction, further pushing up global fuel prices and exacerbating uncertainty in the energy market, plunging the already fragile global energy market into renewed turmoil. 
In late June and early July, Asian refiners were optimistic that the Strait of Hormuz would reopen with the US-Iran understanding, leading to a gradual increase in crude oil supplies from the Middle East and boosting market confidence. At that time, several international investment banks lowered their oil price forecasts, predicting a gradual oversupply in the third quarter. Asian refineries also began scheduling production and stockpiling, preparing for capacity expansion and efficiency improvements. However, this optimism was quickly shattered by the sudden collapse of the ceasefire agreement. The increase in fuel production in the third quarter is expected to be significantly delayed, or even impossible. This is because traffic conditions in the Strait of Hormuz have deteriorated again, currently at their lowest level since May—only a very small number of oil tankers can pass through the strait daily, and the transportation bottleneck has caused a supply chain standstill. As a core global energy transportation channel, the Strait of Hormuz carries approximately 20% of global maritime oil trade. The current sharp decline in shipping volume, with most tankers suspending passage or detouring due to safety risks, has significantly reduced the capacity for exporting Persian Gulf crude oil. Furthermore, another major threat comes from the Houthi rebels, allied with Iran, whose attempt to block the Bab el-Mandeb Strait is particularly worrying. This strait is a crucial passage for Saudi Arabia's Red Sea oil exports, carrying 7 to 9 million barrels of crude oil daily, making it of immense strategic value. This would cut off Saudi Arabia's oil exports via the Red Sea, a pressing issue for Asian refineries that have relied on Red Sea crude oil supplies for the past few months. If the blockade becomes a reality, it will further compress Asia's crude oil import channels, exacerbating energy shortages and creating a severe situation where both the Persian Gulf and Red Sea routes are blocked, significantly tightening the overall global crude oil supply. Meanwhile, refineries in the US and Europe are operating near full capacity. Their long-term high-load operation has left them with no spare capacity to compensate for the Middle East supply gap through increased production. However, due to the renewed escalation of the Middle East conflict, loading and delivery plans for July and August have been completely disrupted. Therefore, Asian refineries may struggle to achieve their expected production growth, posing a severe challenge to the global fuel market recovery. A senior executive at a Chinese refinery stated that loading delays this month and next will directly impact the acceleration of fuel production in China, potentially leading to tight domestic refined oil supplies. This, coupled with rising demand for industrial and residential fuels during the summer, will further increase the pressure on the domestic refined oil supply-demand balance. Looking back at recent data, in June, Chinese refineries further reduced crude oil processing volumes, with their processing scale declining, even falling to the lowest level during the pandemic – comparable to 2020. This was mainly due to supply disruptions in the Strait of Hormuz and a decrease in domestic fuel demand. Affected by insufficient crude oil arrivals and rising processing costs, many refineries have proactively reduced their operating rates, resulting in a continued decline in the overall industry operating rate. If this trend continues, it will pose an additional obstacle to the economic recovery in Asia and even globally. However, given the deteriorating situation in the Middle East, it is still difficult to say whether crude oil transportation volumes can rebound. The International Energy Agency has also repeatedly warned that the continued spread of geopolitical conflicts in the Middle East will directly overturn expectations for a global crude oil market recovery. Experts warn that if the conflict escalates further, international oil prices may experience another round of volatility, leading to higher costs for both consumers and industrial users. Downstream industries such as transportation, chemicals, and manufacturing, as well as ordinary consumers, will face pressure from rising energy costs. According to the latest news, market participants are closely monitoring the situation and have begun assessing alternative supply routes and inventory adjustment strategies. Major energy companies have activated contingency plans, both to utilize existing crude oil inventories to buffer the supply gap and to urgently investigate alternative sea transport routes and adjust import procurement structures to mitigate supply risks.
In late June and early July, Asian refiners were optimistic that the Strait of Hormuz would reopen with the US-Iran understanding, leading to a gradual increase in crude oil supplies from the Middle East and boosting market confidence. At that time, several international investment banks lowered their oil price forecasts, predicting a gradual oversupply in the third quarter. Asian refineries also began scheduling production and stockpiling, preparing for capacity expansion and efficiency improvements. However, this optimism was quickly shattered by the sudden collapse of the ceasefire agreement. The increase in fuel production in the third quarter is expected to be significantly delayed, or even impossible. This is because traffic conditions in the Strait of Hormuz have deteriorated again, currently at their lowest level since May—only a very small number of oil tankers can pass through the strait daily, and the transportation bottleneck has caused a supply chain standstill. As a core global energy transportation channel, the Strait of Hormuz carries approximately 20% of global maritime oil trade. The current sharp decline in shipping volume, with most tankers suspending passage or detouring due to safety risks, has significantly reduced the capacity for exporting Persian Gulf crude oil. Furthermore, another major threat comes from the Houthi rebels, allied with Iran, whose attempt to block the Bab el-Mandeb Strait is particularly worrying. This strait is a crucial passage for Saudi Arabia's Red Sea oil exports, carrying 7 to 9 million barrels of crude oil daily, making it of immense strategic value. This would cut off Saudi Arabia's oil exports via the Red Sea, a pressing issue for Asian refineries that have relied on Red Sea crude oil supplies for the past few months. If the blockade becomes a reality, it will further compress Asia's crude oil import channels, exacerbating energy shortages and creating a severe situation where both the Persian Gulf and Red Sea routes are blocked, significantly tightening the overall global crude oil supply. Meanwhile, refineries in the US and Europe are operating near full capacity. Their long-term high-load operation has left them with no spare capacity to compensate for the Middle East supply gap through increased production. However, due to the renewed escalation of the Middle East conflict, loading and delivery plans for July and August have been completely disrupted. Therefore, Asian refineries may struggle to achieve their expected production growth, posing a severe challenge to the global fuel market recovery. A senior executive at a Chinese refinery stated that loading delays this month and next will directly impact the acceleration of fuel production in China, potentially leading to tight domestic refined oil supplies. This, coupled with rising demand for industrial and residential fuels during the summer, will further increase the pressure on the domestic refined oil supply-demand balance. Looking back at recent data, in June, Chinese refineries further reduced crude oil processing volumes, with their processing scale declining, even falling to the lowest level during the pandemic – comparable to 2020. This was mainly due to supply disruptions in the Strait of Hormuz and a decrease in domestic fuel demand. Affected by insufficient crude oil arrivals and rising processing costs, many refineries have proactively reduced their operating rates, resulting in a continued decline in the overall industry operating rate. If this trend continues, it will pose an additional obstacle to the economic recovery in Asia and even globally. However, given the deteriorating situation in the Middle East, it is still difficult to say whether crude oil transportation volumes can rebound. The International Energy Agency has also repeatedly warned that the continued spread of geopolitical conflicts in the Middle East will directly overturn expectations for a global crude oil market recovery. Experts warn that if the conflict escalates further, international oil prices may experience another round of volatility, leading to higher costs for both consumers and industrial users. Downstream industries such as transportation, chemicals, and manufacturing, as well as ordinary consumers, will face pressure from rising energy costs. According to the latest news, market participants are closely monitoring the situation and have begun assessing alternative supply routes and inventory adjustment strategies. Major energy companies have activated contingency plans, both to utilize existing crude oil inventories to buffer the supply gap and to urgently investigate alternative sea transport routes and adjust import procurement structures to mitigate supply risks.
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