Countries are collapsing — diesel disappears as refineries are bombed

The world is experiencing a major energy crisis today, but the cause of this crisis is not a shortage of oil underground, as many people might think.

The real problem is a shortage of oil refineries capable of turning the crude oil being extracted into diesel fuel that can power cars, trucks and ships. In other words, the world is facing not an oil shortage, but a refining shortage.

A comparison of the figures makes the situation even clearer. For example, the price of a barrel of Brent crude is currently around $99. In 2022, however, the price rose as high as $123.

In other words, crude oil is cheaper than at its previous peak. Nevertheless, diesel prices have now reached an all-time record, hitting historic highs. Looking at the situation in the United States, the $2.25 increase in diesel prices since February shows that only 68 cents of the increase is attributable to higher crude oil prices. The main factor driving prices higher — approximately $1.71 — is the refining cost and margin charged by oil refineries.

So, what happened to these refineries? The main answer lies in wars and political decisions. Recent conflicts have failed to destroy oil wells, but they have knocked out oil refineries.

As a result of destruction in the Middle East and Russia, operational shutdowns and China limiting the activity of its own refineries, approximately 5 million barrels per day of refining capacity have been taken offline. The biggest blow has been dealt to the Persian Gulf. The diesel supply lost there is roughly three times greater than the amount lost by Russia. This is particularly unfortunate because Gulf countries spent billions of dollars over the past decade, surpassing North America and becoming the world’s largest diesel exporters.

Western countries, meanwhile, have been moving in the opposite direction for years. Western oil companies have not built major new refineries for decades. Moreover, under the pretext of transitioning to “green energy,” more than a dozen refineries have been shut down in the United States and Europe since 2015. For example, while the United Kingdom had nine oil refineries at the beginning of this century, that number has now fallen to just four. The remaining refineries in the United States are currently operating at more than 90% of their capacity, meaning there is virtually no room to increase production. Restarting old refineries or building new ones, meanwhile, would take years.

Even the old methods governments use in emergencies cannot provide much relief. For example, even if the United States releases oil from its Strategic Petroleum Reserve, it would only provide crude oil, not ready-to-use diesel. At the same time, political obstacles are deepening the problem. In Romania, an oil refinery owned by Russia’s Lukoil remains shut down. A proposal to sell the refinery to the American company Carlyle has been delayed in Washington’s official approval process, preventing it from resuming operations.

For decades, when people talked about energy security, the first question was: “Who controls the oil wells?” But the reality has now changed. The key issue is no longer who owns the oil, but who has the capacity to actually refine that oil and turn it into fuel.

Giymat Mahir