Global Refiners Face Feedstock Deficits as Gulf Processing Capacity Halts

The prolonged military standoff surrounding the Strait of Hormuz is inflicting severe structural damage across global downstream supply chains, as extensive regional outages cut off key flows of diesel, jet fuel, and liquefied petroleum gas (LPG).

According to recent assessments by the International Energy Agency (IEA), nearly 3 million barrels per day of domestic refining capacity across the Persian Gulf has been forced offline due to kinetic strikes on energy installations and the physical impossibility of clearing finished products via sea routes. In 2025, regional producers supplied approximately 3.3 million barrels per day of refined oil products and 1.5 million barrels per day of LPG to global consumers. The sudden loss of these export flows has severely disrupted global balances.

The shock is rippling outward to secondary refining centers in Asia and Europe. Major refining hubs that depend heavily on Middle Eastern sour crude are being forced to throttle back run rates due to feedstock shortages. While Saudi Arabia and the United Arab Emirates have managed to bypass Hormuz by piping select volumes to export terminals on the Red Sea and Gulf of Oman, pipeline capacity is insufficient to fully offset the maritime bottleneck.

The downstream strain is most severe in middle distillates. Diesel and aviation fuel crack spreads have maintained wide historical premiums as buyers scramble for available Atlantic Basin and Asian spot supplies. Industrial consumers are increasingly struggling to secure adequate volumes, with the petrochemical sector suffering severe contractions due to a dearth of naphtha and LPG feedstocks. Compounding these shortages, parallel Ukrainian drone strikes against domestic Russian refining complexes have capped secondary product exports, eliminating the traditional swing suppliers that international energy markets rely upon during Persian Gulf disruptions.