European and North American refineries are under growing strain as halted supplies from Russia, rising energy costs and shipping disruptions linked to the U.S.-Iran conflict combine to squeeze refining capacity and push fuel costs higher. Analysts and industry officials say the immediate shock to crude flows and logistics has already reduced refinery output worldwide and could lock in lower refining capacity in Europe for years.
The decline has been most acute since the U.S.-Israeli conflict with Iran intensified in early 2026, while the ongoing Russia–Ukraine war continues to curtail exports. Meanwhile, trading flows have shifted to Asia and the Middle East, and several older European plants have idled or closed, according to industry sources and an interview with former OPEC spokesperson Hassan Hafiz.
Refining capacity faces long-term decline
Europe’s refining capacity is forecast to contract significantly, with analysts estimating a drop of roughly 20 percent from pre-war levels. Therefore, refining capacity in the region could settle near 9 million barrels per day through 2035, down from more than 14 million barrels per day before recent waves of closures and investment shifts.
Meanwhile, the United States also faces pressure: projections cited by industry observers suggest U.S. refinery throughput could decline by about 7 percent by 2035, lowering output below 17 million barrels per day. Furthermore, proposed projects such as a planned Texas refinery partnership announced by the administration to process shale crude would add only limited new capacity relative to the shortfall.
Impact on diesel prices and aviation fuel
The squeeze on refining capacity is translating into steep retail and wholesale increases, most notably for diesel and jet fuel. Diesel prices in Europe have risen sharply since the start of the Middle Eastern conflict, with cumulative gains that industry analysts say amount to roughly 70 percent since hostilities escalated.
Additionally, aviation fuel remains vulnerable because Europe imports more than a quarter of its jet fuel from Gulf countries and relies on Russia for a large share of diesel and aviation-grade kerosene prior to the conflicts. Therefore, any prolonged interruptions to those flows feed directly into higher costs for airlines and for road freight, amplifying inflationary pressures.
Why refinery closures are accelerating
Several interlinked factors are accelerating refinery closures across Europe: higher operating costs tied to disrupted maritime routes, competitive pressure from more modern refineries in Asia, India and the Middle East, and tighter environmental rules that raise capital and compliance costs. Consequently, investors have been reluctant to finance upgrades or new builds in Europe.
In 2025, for example, Europe closed plants that removed roughly 500,000 barrels per day of production capacity, as lower-cost and higher-efficiency facilities abroad undercut European product margins. Hassan Hafiz noted in an interview that governments’ stricter emissions policies and the push toward electric vehicles dampen incentives to replace lost capacity locally.
Global shipping disruptions and supply shifts
Shipping disruptions centered on the Strait of Hormuz and other key chokepoints have raised freight insurance rates and rerouting costs, contributing to higher end-user prices. Tanker diversions and longer voyages add to fuel consumption and logistical complexity, and traders are passing those costs through to refiners and consumers.
Consequently, Europe has increased imports from the Middle East, Iraq and Asian refiners to offset lost Russian supplies. However, those markets are themselves under strain: refinery utilization in the Gulf and parts of Asia rose as buyers sought alternative sources, tightening global product balances and reducing the scope for quick relief.
Policy responses and market adjustments
Governments and industry actors are pursuing multiple short-term and medium-term responses. Some European nations are maximizing throughput at remaining facilities and tapping strategic reserves to smooth supply. Meanwhile, longer-term strategies include diversifying import partners, accelerating fuel-efficiency measures and prioritizing investments in low-carbon fuels.
Energy ministers and trade officials say that while tapping spare capacity in the Gulf and Asia can partially bridge the gap, structural adjustments are required to manage recurring shocks. Therefore, policymakers are weighing incentives to maintain critical refining services, particularly for aviation fuel and diesel used by essential services and heavy transport.
What comes next
Market watchers say the crisis will ease only when geopolitical tensions abate. According to industry analysts and Hassan Hafiz, resolving the U.S.-Iran hostilities and stabilizing flows from Russia would materially reduce upward pressure on diesel prices and allow refiners to rebuild product availability.
In the near term, consumers and businesses should expect elevated diesel and jet fuel costs, intermittent regional shortages and continued volatility in logistics. Meanwhile, investors and governments will watch whether policy settings change to either encourage domestic refining investments or accelerate transitions to alternative fuels and electrified transport.
Readers should watch for diplomatic developments, announced refinery reopenings or new project finance, and routine industry reports on refinery runs and product stocks over the next 6 to 12 months as the most immediate indicators of whether supply-side pressures are easing or becoming entrenched.