The Global Refining Network Is Becoming a Logistics Chokepoint

The conflict involving Iran and the continuing Russia-Ukraine war are exposing a supply-chain vulnerability that receives far less attention than crude oil production: the global refining and petroleum logistics network.

The world can have crude oil available and still experience shortages of diesel, jet fuel, marine fuels and petrochemical feedstocks if it cannot move that crude to the right refineries, process it into the products customers actually consume and then move those products to the markets where they are needed. In 2026, that distinction has become increasingly important. The problem facing the global economy is no longer simply the availability of oil. It is the network capacity required to transform and deliver it.

That network is more concentrated than many supply-chain executives may realize. Oil & Gas Journal has counted roughly 575 active refineries across 107 countries, while OPEC reports that global refining capacity stood at 103.66 million barrels per day in 2025, with actual refinery throughput averaging 86.89 million barrels per day. The refining industry has simultaneously been shifting toward larger and more sophisticated facilities, particularly in China, India and the Middle East, while older capacity has closed in parts of Europe and other mature markets.

That evolution makes economic sense. Large refineries gain tremendous efficiencies through scale, process integration and sophisticated conversion technology. But supply-chain practitioners will immediately recognize the tradeoff. Greater concentration means more volume moving through fewer nodes, increasing the consequence when one of those nodes, or the transportation infrastructure connecting it to the rest of the network, is disrupted.

In 2026, two different wars are testing that architecture simultaneously.

Crude Oil Is Only the First Step

Supply-chain discussions about energy frequently focus on the upstream market: production levels, OPEC decisions, oil reserves and the price of Brent crude. Yet crude oil is essentially an industrial input. The physical economy consumes what refineries manufacture from it.

Trucks need diesel. Aircraft require jet fuel. Ships consume marine fuels. Construction and mining equipment depend heavily on middle distillates. Petrochemical plants require LPG, naphtha and other hydrocarbon feedstocks that ultimately become plastics, packaging, fibers, coatings and industrial chemicals.

The relevant supply chain therefore looks something like this:

Production field → pipeline → export terminal → tanker → import terminal → refinery → storage terminal → pipeline, ship, rail or truck → distributor → end user

A disruption at any one of those nodes can constrain the entire system.

Refineries themselves also are not perfectly interchangeable. Crude grades differ substantially in density, sulfur content and chemical characteristics. Refinery configurations determine how efficiently facilities can process those grades and the mix of products they can make. Replacing one million barrels per day of lost refinery throughput is therefore not necessarily a matter of finding another refinery somewhere in the world with one million barrels per day of nominal spare capacity.

The replacement refinery has to be able to obtain an appropriate feedstock, process that crude efficiently, produce the required product specification and connect to a transportation system capable of moving the output to the demand location.

This is where the refinery story becomes a logistics story.

The Real Constraint Is the Network

The importance of that distinction has become particularly evident in the Middle East.

The Strait of Hormuz is usually described as an oil chokepoint, and for good reason. But treating it purely as a crude-oil chokepoint understates the supply-chain exposure. Gulf countries are also major producers and exporters of refined petroleum products, LPG and petrochemical feedstocks.

Before the current conflict, Gulf producers exported approximately 3.3 million barrels per day of refined products and another 1.5 million barrels per day of LPG. When flows through Hormuz collapsed earlier this year, more than 3 million barrels per day of regional refining capacity shut down because of attacks or because facilities lacked viable outlets for their products. The International Energy Agency estimated that more than 4 million barrels per day of refining capacity was potentially at risk as product tanks filled and export routes became constrained.

That demonstrates an important logistics principle: physical production capacity and usable production capacity are not the same thing.

A refinery does not need to suffer direct physical damage to become constrained. If crude cannot reach the refinery, it loses feedstock. If tankers cannot load its products, storage eventually fills. Once tanks approach capacity, refinery runs must be reduced even if every processing unit remains operational.

Transportation capacity can therefore determine manufacturing capacity.

That phenomenon is familiar elsewhere in supply chains. A factory capable of producing 10,000 units per day does not provide 10,000 units of effective capacity if inbound components arrive for only 6,000 units or outbound transportation can move only 7,000. Refining is no different, except that the volumes are measured in millions of barrels and the transportation network spans continents.

Refinery Capacity Is Becoming More Concentrated

The structure of that network has also been changing for years.

Oil & Gas Journal noted that the number of refineries had declined even as global refining capacity increased, reflecting expansions at existing plants and the construction of larger facilities. OPEC estimated global capacity at more than 103 million barrels per day in 2025, with additions increasingly concentrated in non-OECD markets such as China, India and the Middle East.

That creates a supply-chain architecture increasingly dependent on large industrial nodes and long transportation lanes. Crude may travel thousands of miles to reach a sophisticated export refinery, after which diesel, jet fuel or petrochemical feedstocks may travel thousands of additional miles to consuming markets.

This is not fundamentally different from what has occurred in semiconductors, battery materials or critical-mineral processing. Scale and specialization drive efficiency, but they also concentrate risk.

The Middle East conflict is now stressing both the manufacturing nodes and the transportation lanes simultaneously.

Hormuz Has Become a Transportation-Capacity Problem

Perhaps the clearest illustration is what has happened in tanker logistics.

As conventional export routes have been disrupted, producers have increasingly relied on alternative pipelines, ports and ship-to-ship transfers. Those alternatives have prevented a complete collapse in Gulf exports, but they have also created secondary bottlenecks.

Saudi Arabia’s East-West Pipeline is a particularly important example because it allows crude from the Persian Gulf region to move across the country to the Red Sea port of Yanbu, bypassing Hormuz. That pipeline itself was subsequently attacked and shut down in September, temporarily eliminating one of the most important alternative routes around the original chokepoint.

Operations have now restarted. On September 29, Reuters reported crude loadings at Yanbu at about 2 million barrels per day, while Kpler estimated pipeline throughput at about 2.65 million barrels per day. Throughput could climb toward 3 million to 4 million barrels per day relatively quickly, but a return to the pre-attack rate of approximately 5.5 million barrels per day may take another month.

From a logistics perspective, this is exactly what redundancy is supposed to accomplish. An alternative route absorbs volume when the primary lane becomes unavailable. But redundancy only works to the extent that the backup itself has sufficient capacity and remains operational.

When Yanbu became constrained, more volume shifted back toward marine movements and ship-to-ship transfers in the Gulf of Oman. By late September, more than 60 million barrels of Saudi crude had reportedly been sold for ship-to-ship transfer near Sohar, Oman. Saudi exports moving through Hormuz were expected to increase from about 900,000 barrels per day in August to 3.6 million barrels per day in September, requiring an additional 36 to 40 very large crude carriers.

The result was predictable. Tanker availability tightened, congestion increased and VLCC charter rates reportedly reached approximately $1.27 million per day. Buyers began looking at alternative transfer locations farther away, including India and Malaysia.

This is textbook transportation economics. When a major lane loses capacity, freight diverts to alternatives. Those routes then become congested. Transit times rise. Assets spend more time waiting and less time moving. Even if the number of tankers in the fleet has not changed, effective transportation capacity declines because equipment cycle time increases.

In petroleum logistics, a tanker is also inventory in motion. A longer voyage means the same ship can complete fewer rotations in a month, tying up both transportation capacity and millions of barrels of working inventory.

Russia Is Creating a Second Product-Supply Shock

The Middle East would be a significant problem on its own. It is not occurring on its own.

Ukraine has increasingly targeted Russian refinery infrastructure, while Russia continues attacking Ukrainian energy and industrial infrastructure. The cumulative effect on Russian refining has become significant enough to affect international product markets.

Russia extended restrictions on diesel exports through September after repeated attacks left refineries offline and domestic fuel supplies tight. Russia is one of the world’s largest diesel exporters, meaning reductions in Russian output immediately shift demand toward alternative suppliers.

The physical damage has continued as well. Russia’s Perm refinery, the country’s seventh largest by processing volume, stopped operating following a September 25 drone strike that damaged pipelines, storage equipment and other infrastructure. The refinery processed approximately 12.6 million metric tons of crude in 2024 and produced around 5.3 million tons of diesel and 2 million tons of gasoline.

From the perspective of the global logistics network, the important issue is what happens next. If a Russian refinery produces less diesel and exports are restricted, buyers that previously sourced Russian barrels must obtain replacement supply from somewhere else. Turkey, Brazil or another importer may turn to U.S., Indian, Middle Eastern or other refining centers.

Those replacement barrels often travel longer routes. They require additional tanker capacity. They compete against existing customers of those suppliers. And they draw inventories from regions that may themselves have relatively limited buffers.

A refinery outage in Russia therefore becomes a tanker-capacity problem in the Atlantic Basin, an inventory problem in Europe or Latin America, and potentially a pricing problem for trucking fleets thousands of miles away.

That is what interconnected supply chains do: they propagate constraints.

Diesel Shows How Quickly the Problem Spreads

The September IEA Oil Market Report makes the scale of the problem unusually clear.

Global refinery throughput reached 81.4 million barrels per day in August, but remained 4.2 million barrels per day below the previous year. The IEA now expects worldwide refinery runs to decline by 2.6 million barrels per day in 2026, to an average 81.5 million barrels per day.

The product-market consequences are even more striking. Refined-product and LPG exports from Gulf countries remained approximately 3.7 million barrels per day, or nearly 60%, below February levels. Gulf diesel and gasoil exports averaged just 390,000 barrels per day in August, slightly more than one-quarter of their prewar rate.

When Russia is added to that equation, the logistics impact becomes much larger. The IEA calculates that Gulf and Russian diesel and gasoil exports in August were 1.6 million barrels per day below February levels. Before the disruptions, those two sources represented nearly 45% of global seaborne diesel trade.

That is not simply a fuel-price story.

Diesel sits underneath much of the physical economy. It powers long-haul trucking, construction equipment, agricultural machinery, mining operations, backup generators and a substantial portion of marine and industrial activity.

When internationally traded diesel becomes scarce, the immediate response is a global repositioning exercise. Importers search for substitute barrels. Refiners increase utilization where they can. Product tankers travel different routes. Cargoes are redirected toward the highest-paying markets. Inventories fall in exporting countries while importing countries compete for replacement supply.

The United States has increasingly become one of those balancing suppliers. Reuters reported in September that U.S. diesel exports had risen more than 20% from 2025 levels to approximately 1.3 million barrels per day as American refiners helped replace missing Middle Eastern and Russian supply. At the same time, U.S. inventories fell to their lowest seasonal levels in decades.

That creates an uncomfortable supply-chain feedback loop. The more aggressively one region fills a global shortage, the more it can reduce its own inventory buffer.

Inventories Are Safety Stock at Global Scale

Supply-chain practitioners should recognize another familiar concept in what has happened this year: safety stock.

Commercial fuel inventories and strategic petroleum reserves perform much the same role that safety inventory performs in a manufacturing or distribution network. They absorb temporary disruptions, allowing demand to continue while the underlying supply problem is corrected.

Those buffers have been heavily used.

The IEA reported that global observed oil inventories fell another 95 million barrels in August, bringing cumulative draws since February to 507 million barrels, equivalent to an average draw of 2.8 million barrels per day.

Earlier in the year, IEA countries had agreed to make 400 million barrels of emergency reserves available in response to disruptions stemming from the Middle East conflict.

Inventories, however, do not create permanent production capacity. They buy time.

A distribution center can survive a supplier outage for several weeks if it has sufficient safety stock, but eventually either supply must resume or demand must be reduced. Petroleum markets operate according to the same logic, only on a far larger scale.

Europe Demonstrates the Cost of Transportation Dependence

Europe provides another illustration of what happens when local production capacity declines and dependency shifts toward international logistics.

The United Kingdom has gone from six operating refineries in 2024 to four today. Diesel imports represented nearly 40% of UK petroleum-product imports in 2025, according to figures cited by Reuters. With international diesel markets tightening, UK diesel prices reached a record 199.18 pence per liter in late September.

This is an important distinction for supply-chain strategy. Shutting a domestic production facility does not eliminate demand. It changes the mechanism by which demand is satisfied.

Local manufacturing dependence becomes import dependence.

Import dependence becomes tanker dependence.

Tanker dependence creates exposure to freight rates, insurance, port capacity, trade policy, geopolitical chokepoints and longer replenishment lead times.

The economics may still justify the original refinery closure. But the risk profile has fundamentally changed.

The Impact Extends Beyond Trucking

Diesel may provide the clearest connection to logistics, but the effects extend further.

Jet fuel markets are also tight. On September 29, Lufthansa said the additional effect of higher fuel costs during 2026 would exceed its previous estimate of €1.5 billion. Fuel accounts for approximately 30% to 40% of airline operating expenses, giving higher jet-fuel prices a direct route into both passenger aviation and air-cargo economics.

Petrochemicals add another layer. Earlier in the conflict, reduced Gulf availability of LPG and naphtha forced some petrochemical producers to curb polymer production. These materials feed downstream industries ranging from packaging and automotive components to consumer products and industrial chemicals.

A manufacturer does not need to purchase diesel directly to be exposed to refinery disruptions. Its transportation providers purchase fuel. Its packaging suppliers purchase resins. Its chemical suppliers purchase refinery or gas-processing feedstocks. Its airfreight providers purchase jet fuel.

Petroleum exposure exists several tiers upstream in almost every physical supply chain.

This Is a Network-Design Problem

This is ultimately why the refinery story belongs on a logistics site rather than only in an energy-market discussion.

The challenge can be described through four familiar supply-chain variables: node capacity, lane capacity, inventory and substitution time.

Refineries provide node capacity. Pipelines, tankers and terminals provide lane capacity. Commercial stocks and strategic reserves provide inventory buffers. Alternative crude grades, refineries, shipping routes and suppliers provide substitution options.

The Iran conflict and the Russia-Ukraine war are applying pressure to all four at the same time.

Some refinery capacity is unavailable. Some transportation lanes are constrained. Tanker cycle times and costs have increased. Inventory buffers are being drawn down. And substitution is neither instantaneous nor frictionless because refineries, crude grades, fuel specifications and logistics networks are not perfectly interchangeable.

The result is a system in which relatively small disruptions can cascade through multiple markets.

That is exactly how complex supply networks behave when highly utilized nodes become concentrated and buffers decline.

Refineries Belong on the Global Supply-Chain Chokepoint Map

Over the past several years, supply-chain executives have learned that infrastructure previously viewed as someone else’s concern can quickly become operationally strategic.

Semiconductor fabs became supply-chain infrastructure during the chip shortage. The Suez Canal became supply-chain infrastructure when a single container ship blocked it. The Panama Canal became supply-chain infrastructure when drought constrained vessel transits. Rare-earth processing facilities became supply-chain infrastructure when companies realized that where minerals are processed can matter as much as where they are mined.

Refineries deserve the same treatment.

The world has roughly 575 active refineries, and refining capacity has increasingly migrated toward large, sophisticated facilities connected to international crude and product markets. That architecture generates tremendous efficiency, but it also means that a disruption in a comparatively small number of places can affect transportation and manufacturing networks across multiple continents.

The current Middle East conflict is stressing one of the world’s most important energy-production and transportation corridors. The Russia-Ukraine war is simultaneously reducing output from another major refining center. Tankers are being rerouted. Ship-to-ship transfer locations have become congested. Alternative pipelines have themselves become targets. Diesel exports from key regions have fallen dramatically, and inventories are absorbing the difference.

The question for supply-chain executives is therefore no longer simply whether there is enough crude oil in the world.

The more useful question is whether the network has sufficient refining capacity, transportation capacity, inventory and routing flexibility to convert that crude into the right products and deliver those products to the right markets at the right time.

That is the logistics problem emerging from the energy disruptions of 2026.

And it is a reminder of a broader principle that supply chains repeatedly rediscover: available supply is not the same thing as deliverable supply.

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