Three major global maritime chokepoints are facing disruptions, collectively jeopardizing approximately one-quarter of the world's crude oil supply.
The global economy is currently experiencing energy supply pressures from three directions simultaneously, with transport disturbances occurring in the Persian Gulf, the Red Sea, and the Black Sea. Global oil inventories are at multi-year lows, leaving little buffer to cope with supply disruptions.
The scope of Middle East conflict expanded further on Wednesday. The Houthi group, backed by Iran, claimed responsibility for attacks on two Saudi oil tankers heading towards the Bab el-Mandeb Strait. This strait is the most important outlet for Saudi crude following restrictions on passage through the Strait of Hormuz. Prior to the conflict, this route handled roughly 12% of global seaborne crude oil shipments.
Another source of supply disruption originates from the Black Sea, where Ukraine continues to target Russian energy infrastructure and shipping vessels. The waters around the port of Novorossiysk have faced concentrated attacks. This port handles nearly one-third of Russia's crude oil exports, and pipeline transport linking Russian and Kazakh crude to the Black Sea has been forced to halt.
The restricted passage through these three key shipping lanes collectively threatens about a quarter of global crude supply and tests the emergency adaptation capabilities of energy-importing economies.
The two major current international conflicts both revolve around oil dynamics. Iran leverages its control over Persian Gulf crude exports as its most potent bargaining chip against the United States. Ukraine's continuous disruption of Russian energy exports and its domestic fuel market has brought a new initiative to the conflict that has now lasted four years.
Recently, a total of four vessels have been damaged near the Black Sea oil pipeline, including a tanker chartered by Chevron Corporation and owned by the Greek shipping firm Okeanis Eco, whose president is Aristidis Alafouzos. A shipping executive commented that such attacks "pose a systemic threat to the lifeline of global energy supply and the safety of those working to secure energy transport."
The convergence of multiple crises coincides with a moment of extreme vulnerability in energy markets. U.S. crude oil inventories (including commercial and strategic petroleum reserves) fell by 3 million barrels in the week ending July 17, with total stocks dropping to their lowest level since the mid-term of the Reagan administration.
Oil inventories held by governments of OECD nations, primarily developed countries, fell by another 44 million barrels in June compared to May, with May inventories already at their lowest level since December 1990.
Mick Strotman, a market analyst at shipping data firm Vortexa, stated: "The massive release of strategic reserves by countries in the early stages of the conflict has significantly depleted the buffer stockpiles needed to cope with subsequent supply disruptions."
On Thursday, international crude oil prices surpassed $96 per barrel for the first time since the U.S.-Iran memorandum of understanding was signed on June 3.
However, the real market pressure is concentrated in refined products, including gasoline and diesel used by cars, trucks, farm machinery, and aircraft. With the U.S. in its peak summer travel season, the national average retail gasoline price at pumps exceeded $4 per gallon this week and is likely to continue rising.
The root cause lies in the fact that both Russia and the Middle East, two major global hubs for refined product exports, have seen their export capacity damaged by conflict.
Ukraine's ongoing aerial strikes on Russian refineries have severely impacted the processing capacity of the world's second-largest diesel exporter. Data from energy analytics firm EA shows that Russia's crude processing this month has averaged less than 4 million barrels per day, hitting a more than two-decade low.
Long queues have appeared at gas stations across Russia, prompting the government to impose a ban on diesel exports for the entire month starting July 8. Prior to this, Russia had already implemented export controls on gasoline and jet fuel. Russia's diesel exports accounted for about 11% of the global total last year, and this ban is causing significant turbulence in global markets.
Isabelle Gilks, principal analyst for retail fuels at energy consultancy Wood Mackenzie, stated: "This year, Ukrainian drone strikes have successively hit all of Russia's major refineries."
Gilks estimates that over one-third of Russia's refining capacity has been forced offline, with current diesel export volumes halved compared to the same period last year.
"Hampered by international sanctions, Russia faces difficulties in procuring equipment spare parts and hiring specialized technical personnel, making refinery repair progress likely very slow. Even for less intense attacks last year, it took Russia months to resume production."
Obstructions to navigation in the Persian Gulf are also hampering global fuel inventory replenishment. The region previously supplied Europe with about one-fifth of its diesel and half of its jet fuel.
Analysts point out that crude oil can be partially rerouted via pipelines for export through the Red Sea and Gulf of Oman, but refined products are highly dependent on the Strait of Hormuz with few alternative transport routes. This explains why crude supply has recovered much faster than refined product supply over recent months.
The price gap between crude oil and products like diesel and gasoline has widened significantly. The industry refers to this spread as the crack spread, named after the refining cracking process. Current crack spreads in Europe and the U.S. have climbed to multi-year highs.
Analysts at Morgan Stanley stated: "Existing operational refining capacity is insufficient to process the available crude oil into various refined products. This, on one hand, limits the upside for crude oil prices, while on the other, creates supply shortages in the refined product market."
Refining companies benefit from widening crack spreads, which boost profits. The crack spread is also a simple indicator for measuring refinery profitability.
Shipping vessel owners have become another major beneficiary: with a tightening of available global vessels, owners can charge high charter rates.
The Red Sea situation further exacerbates shipping tightness. Even if the Bab el-Mandeb Strait, connecting the Red Sea to the Indian Ocean, is completely closed, cargo ships can still reach Asia, but they must take a significantly longer detour: north through the Suez Canal, west through the Strait of Gibraltar, and then south around the Cape of Good Hope. Shipping data firm Kpler estimates this entire route adds 10 to 15 days.
Very Large Crude Carriers can load 2 million barrels of oil, but when fully loaded, their draft is too deep to pass through the Suez Canal, forcing shipping companies to opt for reduced loads. Longer routes and reduced transport efficiency tie up significant tanker capacity, driving up shipping costs for Asian refineries.
Hizam Al-Assad, a senior official in the Houthi political bureau, posted on social media platform X that attempts to bypass the blockade by rerouting oil through the Mediterranean are "utterly foolish." He hinted that Houthi forces could strike Saudi oil production facilities, for which there is a record of past attacks. He stated: "The next step could involve completely severing the oil supply channels."
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