In our most recent Convenience Leaders Vision Group forum, held on August 27th, (read report here) presenter Tom Kloza made the point that while the closure of the Strait of Hormuz due to the current U.S. war with Iran has had an impact of oil prices, the biggest factor was the loss of refining capacity due to the Iran and Ukraine wars. I thought it would be interesting to dive into that a little deeper.
You could say that oil and refined product prices have been hit by the perfect storm – a combination of war, sanctions, and financial decisions.
Let’s look first at the closure of the Strait of Hormuz which gets the headlines in the U.S. According to the International Energy Agency (IEA), about 25 million barrels of crude oil and oil products were shipped through the Strait in 2025. This is about 25% of the global seaborne oil trade. Between 60-70% of all products shipped through the Strait end up in Asia, including 3 million barrels per day of refined product. The removal of this amount of oil products has forced Asia, and specifically China, to retain its refined product for internal consumption rather than export it.
Next is refining capacity. The IEA says that due to the Iran war, almost 5 million barrels per day of refined product has been taken out of the system due to either damage, or threat of damage, to refineries in the Middle East. Some of this refined product, if it existed, could be transported by means other than by ship through the Strait.
Because of the Ukraine-Russia war, almost 2 million barrels per day of refined product has been taken offline in Russia due to Ukrainian drone attacks while Ukraine has lost 100% of its refining capacity due to Russian attacks – almost 800,000 barrels per day.
The global refineries that are still operating are at 98% capacity, according to the Atlantic Council, while refineries in India are operating at 105% of their designed production capacity. (As a side note, this increase in production is causing refineries to delay maintenance which will have an impact on production in the future). This has been caused by the closing of older refineries and the financial decisions not to add new capacity. What this means is that even if there was additional crude oil available, there is no place to process it.
Finally, there are the sanctions on Iran and Russia that the U.S. and international governments have imposed which could amount to almost 1 million barrels per day being taken out of the global supply, according to the Guardian newspaper. This is an estimate of the “stranded” crude that is not being traded and does not include the black market crude oil that is being transported by “shadow fleets” and consumed by sanction avoiding countries such as China and India.
When you combine all of this, and take out the double counting of barrels, there are almost 5.5 million barrels per day fewer of refined product in the global system than there was in December 2025, according to the IEA. Retail price increases have been slowed due to countries drawing down their strategic reserves but those are now running low. And, more importantly, even if the Strait does open to travel, there is no excess capacity to refine additional crude oil at the moment.
So, while the Strait of Hormuz gets the spotlight in the news, the long-term factors are going to be what affects the future of fuel supply and pricing.
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