The repercussions of the escalating war between the United States and Iran can no longer be measured solely by the number of oil barrels prevented from reaching global markets or by the sharp increases in crude oil prices. Instead, the conflict is exposing a far more complex crisis within the structure of global energy security itself.
Pressure on exports passing through the Strait of Hormuz, combined with Houthi threats to shipping linked to Saudi exports through the Red Sea and Bab el-Mandeb, as well as Russian restrictions on diesel exports, is simultaneously placing three vital components of the energy system under strain: crude oil production, transportation routes, and the global capacity to refine crude into usable fuels.
This multidimensional crisis threatens to derail the anticipated recovery in Asian refinery activity during the third quarter of the year.
It could also prolong shortages of gasoline, diesel and jet fuel, keeping their prices elevated for longer than previously expected.
More importantly, the crisis demonstrates that having sufficient quantities of crude oil does not necessarily mean the world can supply the fuels required by the global economy if the geographical routes through which oil travels are disrupted or if refining and transportation systems become congested.
Asia lies at the heart of this equation.
It is the world’s largest centre of oil demand and one of the regions most dependent on Middle Eastern crude.
China, meanwhile, may possess the greatest capacity to ease the crisis—not because it produces more oil, but because it has extensive refining capacity, substantial inventories and the political authority to control the volume of fuel it exports.
A crisis that began on military battlefields is therefore evolving into a broader test of the fragility of the global energy network.
It is also becoming an indirect struggle over who has the power to keep a barrel of oil moving from the production field until it reaches the final consumer in refined form.
Hormuz: One-Fifth of Global Oil Supplies Under Pressure
The Strait of Hormuz is the starting point for understanding the scale of the danger.
Before the war, approximately one-fifth of the world’s oil supplies passed through the strait, making it the single most important chokepoint in international energy trade.
Its sensitivity stems from the dependence of the Gulf’s largest producers on the waterway to export a substantial share of their output to Asian and global markets.
Saudi Arabia, the United Arab Emirates, Iraq, Kuwait, Qatar and Iran all rely on the route to varying degrees, while alternative export channels do not have sufficient capacity to absorb all the volumes that normally pass through Hormuz.
The strait therefore does not need to be completely closed to trigger a global crisis.
A decline in tanker traffic or even a heightened risk of vessels being targeted would be sufficient to raise insurance premiums and freight rates, delay deliveries, and force traders and refineries to reorganise their supply arrangements.
This illustrates one of the most significant changes in the nature of energy markets.
Risk is no longer measured only by the amount of oil physically removed from the market, but also by the volume of oil that has become more difficult, costly and uncertain to transport.
A barrel that continues to be produced but does not reach a refinery on schedule can, in the short term, have economic consequences similar to those of a barrel that was never produced.
Bab el-Mandeb: When the Alternative Route Becomes a New Chokepoint
In theory, part of the disruption in Hormuz could be mitigated through alternative pipeline networks, particularly Saudi infrastructure that allows crude oil to be transported from the kingdom’s eastern production regions to the Red Sea coast.
However, the expansion of threats to Bab el-Mandeb fundamentally changes that calculation.
With the Houthis in Yemen threatening to target or prevent the passage of Saudi exports through the Red Sea, the problem is no longer limited to moving oil out of the Gulf.
It has now extended to the route that is supposed to serve as one of the most important strategic alternatives to Hormuz.
According to estimates by Energy Aspects, more than three million barrels per day of Saudi crude previously shipped to Asia through Bab el-Mandeb could be forced to change course if the risks intensify.
Early signs of such disruption have already emerged, with tankers carrying Saudi oil to China and India altering their routes in the Red Sea.
These developments reveal an important geopolitical paradox.
Saudi Arabia can partially bypass Hormuz by moving oil westwards to the Red Sea, but it cannot eliminate geography from the equation.
Crude shipped from the Red Sea to Asian markets would normally need to travel south through Bab el-Mandeb.
If that strait also becomes a high-risk zone, tankers will have to seek longer and more expensive routes.
Pressure would consequently shift from a single chokepoint to the possibility of a simultaneous crisis affecting two strategic maritime corridors.
Three Million Barrels Searching for a Longer Route
If Bab el-Mandeb cannot be used normally, one option for some shipments would be to reroute them by sea, potentially requiring substantially longer voyages to reach Asian markets.
At first glance, rerouting may appear to be a manageable logistical problem.
Its economic consequences, however, extend far beyond the additional fuel consumed by tankers.
A longer voyage keeps each vessel occupied for a greater period, reducing the number of journeys the global tanker fleet can complete during the year.
The fleet’s effective transportation capacity could therefore decline even without the loss of a single vessel.
As voyage durations increase, shipping and insurance costs rise, and more vessels are required to transport the same volume of oil.
This effect is particularly significant because energy trade depends on a highly interconnected network.
When transporting a barrel takes longer, floating inventories increase and greater volumes of oil remain stranded at sea instead of reaching refineries.
The crisis then spreads from the transportation sector to the refining industry.
Asia Was Preparing for a Recovery—Then the Calculations Changed
Before the latest escalation, forecasts suggested that Asia would lead a clear recovery in global refining activity during the third quarter.
The International Energy Agency expected global refineries to process approximately 81.6 million barrels per day during the quarter.
That would represent an increase of more than 4% compared with the second quarter, driven primarily by stronger activity in Asia.
Even that projected level, however, was approximately 4% lower than during the same period a year earlier.
This means that the global refining system entered the crisis without a comfortable surplus of operational capacity.
In Asia, Wood Mackenzie had forecast refinery throughput rising to approximately 30.37 million barrels per day in August, compared with around 28 million barrels per day in May and June.
The market was therefore expecting Asian refinery production to increase by more than two million barrels per day within a relatively short period.
Those projections, however, were based on the assumption that crude oil flows would remain stable.
With part of the shipping traffic through Hormuz disrupted and Saudi exports potentially forced onto longer routes, that assumption has now become increasingly uncertain.
Available refining capacity alone is not enough to increase production.
Refineries must receive the specific grades of crude for which they have contracted, in the required quantities and at the appropriate times.
This is where the contradiction becomes clear.
Higher fuel prices provide refineries with a powerful incentive to raise production, but supply disruption may prevent them from taking advantage of those prices.
A Fuel Crisis, Not Merely an Oil Crisis
One of the most common mistakes when assessing energy crises is to focus exclusively on the price of crude oil.
The global economy does not consume crude directly.
It consumes refined products: gasoline for cars, diesel for trucks, agriculture and industry, and jet fuel for air transportation.
The world may therefore possess adequate quantities of crude oil while simultaneously experiencing a severe fuel shortage if sufficient refining capacity is unavailable or if crude cannot reach refineries.
The sharp increase in refining margins reflects precisely this imbalance.
Margins for producing diesel and jet fuel in Asia have exceeded $65 per barrel, compared with just over $20 per barrel before the war.
They have therefore risen to more than three times their previous levels.
This increase is not simply evidence of exceptional profits for refineries.
It is an indication of a severe imbalance between demand for petroleum products and the available capacity to supply them.
High prices are sending a clear signal.
The market is willing to pay more for every additional barrel of fuel, but the global system lacks sufficient flexibility to respond quickly.
The “Double Blow”: Hormuz and Russia
The crisis is becoming more dangerous because disruption to Middle Eastern supplies is occurring at the same time as Russian petroleum-product exports are declining.
Ukrainian drone attacks on Russian refineries have pushed Moscow to restrict or prohibit diesel exports, removing a significant source of supply from the market at an exceptionally sensitive moment.
The energy system is therefore being pressured from two different directions.
In the Middle East, the market faces the risk of shortages or delays affecting the crude oil required by refineries.
In Russia, it faces a shortage of refined products that are already ready for consumption.
The market can usually respond more easily to one of these shocks in isolation.
If several refineries are disrupted, fuel can be imported from abroad.
If refined-product supplies decline, other refineries can increase production, provided that sufficient crude oil is available.
When crude oil and refined fuel come under pressure at the same time, however, the available options for compensation become severely limited.
This is why the current crisis is more dangerous than a temporary rise in oil prices.
It is affecting both sides of the equation simultaneously: the raw material and the finished product.
Why Western Refineries Cannot Fill the Gap
The solution may appear straightforward.
If Asian refineries are disrupted, refineries in the United States and Europe could increase production and benefit from the exceptionally high margins.
The reality is considerably more complicated.
Refineries in the United States and Europe are already operating close to high utilisation levels, driven by demand and record profit margins.
Their ability to add substantial new volumes is therefore limited.
This is not entirely a temporary problem.
It reflects a structural transformation in the global refining industry.
Over several years, a number of ageing refineries in Western economies have been closed or converted.
At the same time, investment appetite for building major new facilities has declined because of high costs, stricter environmental policies and uncertainty surrounding the future of fossil-fuel demand amid the transition towards electric vehicles and cleaner energy.
As a result, new refining capacity has become increasingly concentrated in Asia and the Middle East.
This shift has made the world more dependent on a limited number of major refining centres.
It has also increased market sensitivity whenever supply routes between crude-producing regions and refining hubs are disrupted.
China: A Potential Safety Valve
Amid the crisis, China appears to be the country with the greatest capacity to alter the direction of the market.
While Asian refineries outside China are operating at approximately 93% to 95% of their pre-war levels, Chinese refinery utilisation was notably low.
It stood at approximately 58% of capacity in June.
This means Beijing possesses something increasingly rare in the current market: substantial spare refining capacity that could be activated.
Wood Mackenzie expects Chinese refinery throughput to increase from approximately 12.63 million barrels per day in June to 13.96 million barrels per day in August.
That would represent a potential increase of around 1.33 million barrels per day.
If this increase materialises and Beijing permits a significant proportion of the additional products to be exported, China could help ease global shortages of gasoline, diesel and jet fuel.
This is where the political factor becomes critical.
China does not manage fuel exports solely according to free-market mechanisms.
It operates an export-quota system and determines the volume of petroleum products that refineries are permitted to sell overseas.
Refinery utilisation has been low partly because of weak domestic demand and restrictions on exports.
Beijing eased some of those restrictions in July.
Whether it continues doing so in August and beyond will largely determine China’s ability to act as a safety valve for the global fuel market.
From the Largest Oil Importer to a Player That Influences Fuel Prices
The crisis reveals a deeper transformation in China’s position within the global energy system.
For years, China was viewed primarily as the world’s largest oil importer and one of the most important sources of growth in global demand.
The expansion of its refining capacity and the accumulation of substantial crude inventories now give it a different role.
China can purchase oil when prices are favourable, place it in storage, and later use it to operate its refineries when external supplies are disrupted.
More importantly, it can use administrative decisions to determine how much fuel from its refineries reaches international markets.
This gives Beijing influence that does not depend on owning oilfields.
In a market suffering from shortages of refined products, a country with spare refining capacity and substantial inventories can influence prices to a degree that may, under certain circumstances, approach the influence traditionally exercised by major oil producers.
China could therefore gradually evolve from a “swing consumer” of oil into a “swing producer” of fuel.
Energy Security No Longer Means Simply Owning Oil
The current crisis also exposes the limitations of the traditional concept of energy security.
For decades, countries have focused on the size of reserves, production volumes and spare production capacity.
But what happens when the barrels exist and cannot pass through a strait?
What happens when they reach a port, but there are not enough tankers to transport them quickly?
What happens when they arrive in an importing country, but the refineries cannot process them?
And what happens when refineries produce the fuel, but governments restrict its export?
These questions demonstrate that energy security in the 21st century has become an interconnected network comprising six essential links: production, pipelines, maritime corridors, transportation, refining, and inventories and distribution.
The system does not require every link to collapse before a crisis occurs.
The simultaneous disruption of only two or three links can create bottlenecks that are extremely difficult to compensate for.
This is precisely what makes the combination of Hormuz, Bab el-Mandeb and disrupted Russian exports exceptionally dangerous.
High Prices as a Mechanism of “Demand Destruction”
If supply cannot increase quickly enough, the market has only one other mechanism through which it can restore balance: reducing demand.
This occurs through higher prices.
When gasoline becomes more expensive, some consumers reduce their use of cars.
When diesel prices rise, the costs of road transportation, agriculture and industrial activity increase.
When jet fuel prices surge, travel becomes more expensive and airlines reconsider the viability of certain routes.
Economists describe this process as “demand destruction”.
It means that prices continue to rise until part of the existing consumption becomes economically unsustainable.
At that point, an energy crisis becomes a growth crisis.
Persistently high fuel prices act as an indirect tax on households and companies.
They reduce spending on other goods and services while increasing production and transportation costs.
From a Maritime Strait to Global Inflation
Diesel is one of the most important channels through which the crisis could spread into the global economy.
It is not used only in vehicles, but also in trucks, agriculture, construction, mining, heavy machinery and wide areas of industrial activity.
An increase in its price therefore passes through supply chains and affects the cost of food, goods and services.
Jet fuel raises the cost of travel and air freight, while gasoline prices directly affect household purchasing power.
If these pressures persist, a crisis that began in the Strait of Hormuz or Bab el-Mandeb could eventually appear in inflation data across the United States, Europe and Asia.
Central banks would then face a new dilemma.
Energy-driven inflation could force them to keep interest rates elevated for longer, even if economic growth begins to slow.
A missile strike or an attack on a tanker in a distant maritime corridor could therefore move through a chain of consequences until it influences an interest-rate decision in Washington, Frankfurt or Tokyo.
Three Scenarios for the Energy Market
Three principal paths can be envisaged for the crisis.
The first is gradual containment.
Under this scenario, shipping traffic through Hormuz and Bab el-Mandeb would become relatively stable, delayed cargoes would reach Asia, and China would increase refinery activity and fuel exports.
Prices might remain elevated for some time, but the risk premium would gradually begin to decline.
The second is a prolonged bottleneck.
Oil would continue to flow, but at lower rates and along longer routes, while Russian fuel exports remained restricted.
This scenario would mean continued high refining margins, declining inventories and sustained pressure on gasoline, diesel and jet-fuel prices.
The third and most dangerous scenario is a dual-chokepoint crisis in which Hormuz and Bab el-Mandeb are both subjected to widespread disruption at the same time.
The problem would then extend far beyond the loss of several million barrels.
Global energy trade would be forced to redraw its routes.
Maritime distances would increase, demand for tankers would rise, the effective efficiency of the global fleet would decline, deliveries would be delayed, and refineries would face shortages of the specific crude grades they were designed to process.
Under this scenario, the crisis affecting petroleum products could become more severe than the crude oil crisis itself.
A War Over the Barrel’s Journey
The most significant change revealed by the current crisis is that power within the global energy system is no longer measured solely by the number of barrels a country can produce.
There are now several different forms of energy power.
The Gulf states possess reserves and production capacity.
Iran possesses the geographical and military ability to influence the Strait of Hormuz.
The Houthis can raise the level of risk in Bab el-Mandeb and the Red Sea.
Russia holds significant weight in diesel and petroleum-product exports.
China possesses inventories, refining capacity and the ability to control fuel exports.
Energy security is therefore the result of interactions among all these elements.
A barrel must first be produced and transported to a port.
It must then find a tanker, pass through a secure maritime corridor, reach a refinery capable of processing it, be transformed into fuel, and finally be permitted by the commercial and political system to reach the market where it is needed.
Every disruption along this journey adds a new cost.
The simultaneous failure of more than one link can transform theoretical oil abundance into an actual shortage of fuel.
This is the deeper strategic meaning of the crisis: the world is not confronting a war over oil so much as a war over oil’s journey.
The real battle is no longer solely about who controls the barrel underground.
It is also about who can control the route it travels from the production field to the consumer.
In a world where a substantial proportion of energy trade passes through a limited number of straits and maritime corridors—and where refining capacity is increasingly concentrated in a small number of geographical centres—control over the “barrel’s journey” is becoming a new form of geopolitical power.
The question raised by the current crisis may therefore be far greater than the direction of oil prices over the coming weeks.
The real question is whether a global energy system built over decades on the assumption of freedom of navigation and the ease of redirecting supplies can withstand simultaneous pressure on several of its vital arteries.
The oil may exist.
Refineries may be ready to operate.
Consumers may be willing to pay.
But if the distance connecting these elements becomes disrupted, geography becomes more powerful than the market.
The most expensive barrel is then no longer the one that is most scarce, but the one that can actually reach its destination.
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