Global Fuel Shortage Persists Despite Oil Flow Recovery

Despite a significant recovery in crude oil exports through the Strait of Hormuz, the global market faces a severe shortage of refined fuels, particularly diesel. While oil tanker traffic has returned to near pre-war levels, reaching 10.3 million barrels per day, refined product shipments like gasoline and diesel have plummeted to 1.3 million barrels daily, representing only 11% of total flows compared to over 20% before the conflict. This deficit is attributed to missile and drone attacks on refineries in Saudi Arabia, Kuwait, the UAE, and Iraq, which have disrupted supply chains and driven global fuel prices to record highs.

In Israel, the price of fuel reached an all-time high of 8.27 shekels per liter before government intervention, specifically a reduction in blue tax, lowered the price by 50 agorot. In the United States, the national average for a gallon of diesel hit $6.53 last month, with California recording a historic peak of $8.44 per gallon, significantly impacting food and transportation costs.

The Trump administration is exerting international pressure to address the crisis, and G7 nations have agreed to release 100 million barrels of oil and fuel from emergency reserves. However, a full market recovery is not anticipated before late 2027 due to the extensive time required to repair damaged refineries and infrastructure. Major Asian importers like China, Japan, and South Korea are prioritizing domestic use of refined fuels, leaving the U.S. as the primary supplier in a dwindling market.

To circumvent disruptions and infrastructure damage, oil exporters are employing complex workarounds, including ship-to-ship transfers in the Gulf of Oman, increased use of bypass pipelines, and shuttle tankers along the Omani coast. These measures incur higher costs, longer transit times, and discounts of up to $9 per barrel to compensate for the logistical challenges.

Geopolitically, the situation in the Strait of Hormuz remains tense. Iran's maritime oil exports have dropped to near zero following a U.S. naval blockade, limiting its ability to use the strait as an economic weapon. Concurrently, a new wave of Iranian attacks on vessels near the strait threatens to slow recovery efforts. Iran has stated the strait will remain closed until the U.S. meets seven conditions from a June interim agreement, though Foreign Minister Abbas Araghchi suggested an updated proposal could lead to its opening within seven days if accepted. Meanwhile, U.S. oil industry executives are urging the U.S. Navy to prioritize military escorts for refined fuel tankers, which are more valuable than crude oil tankers, as current escorts are largely allocated to supertankers.