Two wars — the United States against Iran, and Russia against Ukraine — have moved from crude oil to refined fuels such as gasoline, diesel and jet fuel, pushing national refining capacity to the center of the issue. Major advanced economies including the U.S., Europe, Japan and Australia have gradually shrunk their refining plants as they accelerated policies to move away from oil, while China expanded its own and is now using that capacity as a buffer in the current conflict.
Global refining capacity grew an average of 0.6% a year over the decade from 2015 to 2025, according to data released on the 5th by the Energy Institute, a British energy research body. Consumption of refined products rose 1% over the same period, meaning refining capacity failed to keep pace. Last year alone, consumption of refined products rose 1.3% while refining capacity fell 0.3%.
The contraction was most pronounced in Western advanced economies. Among members of the Organisation for Economic Co-operation and Development, refining capacity shrank at an average annual rate of 0.2% between 2015 and 2025. The group includes the European Union, whose 27 member states saw capacity fall 0.7% a year, along with Australia at minus 6.9%, Japan at minus 1.8% and the U.S. at minus 0.1%.
That weakened capacity surfaced as a problem through the U.S.-Iran war that broke out in February this year. Diesel and jet fuel prices jumped sharply, and European jet fuel inventories fell below 30 days of supply in June. The bottleneck then shifted to diesel after Russia, whose refining facilities were badly damaged by Ukrainian counterattacks, imposed restrictions on refined product exports through October. With Middle Eastern and Russian diesel supply gone, demand surged for diesel from the U.S., the world's largest diesel exporter, driving American diesel inventories as of September to their lowest level since 1982.
Faced with threats from the administration of U.S. President Donald Trump to block diesel exports, the Group of Seven nations including the EU hastily agreed on the 2nd to a joint release of 100 million barrels of diesel and crude oil. U.S. Energy Secretary Chris Wright said in an interview with CBS on the 4th that diesel prices in the U.S. would fall below $6 a gallon as European countries release their diesel stocks.
China's refining capacity, by contrast, grew an average of 2.3% a year over the same 2015-2025 period. For a country that is not a traditional oil producer, that became a lever for expanding its influence in global energy markets during the U.S.-Iran war.
China imposed emergency restrictions on refined product exports in March, shortly after the Strait of Hormuz was blockaded, then gradually loosened export volumes in a way that built up its market leverage. That is why forecasts proved wrong that China would be the biggest casualty of the U.S.-Iran war, given its heavy dependence on the Middle East for more than 40% of its crude imports. With Beijing reimposing a ban on refined product exports this month, importers of Chinese fuel including Australia, Vietnam, Japan and Indonesia have already begun to worry about supply disruptions.
The shift away from oil appears unlikely to reverse. The International Energy Agency projected that global energy investment would reach a record $3.4 trillion this year, but investment in fossil fuels accounted for only 35%, or $1.2 trillion, of that total. Even so, some argue that refining capacity is needed as a safeguard regardless of the energy transition. Dan Evans, head of fuel and refining research at S&P Global Commodity Insights, said that when refining capacity is short, it becomes harder to shield consumers from high fuel costs and to maintain energy security and open trade flows.
