Refinery outages in Russia and the Middle East have cut exports of petroleum products and raised diesel prices. The average US diesel price hit $5.65 per gallon the week of August 24—up 52 percent year on year. Even if crude prices fall, product prices could remain stubbornly high in the coming months. Policymakers in Washington are exploring ways to increase output of refined products, but US refineries are already operating near full capacity, and measures to boost near-term output are limited. Longer-term policies to safeguard supply of refined products merit more attention.
The refinery factor
Crude oil prices are the largest single factor shaping the cost of US gasoline prices, but prices for crude and petroleum products don’t always rise and fall together. They diverged, for example, in 2022 when Russia’s full-scale invasion of Ukraine strained global inventories and threatened a supply disruption. A similar pattern is happening today. Even though global refining capacity has risen by 15 percent in the past two decades, about 5 million barrels per day (b/d) of global refining capacity is currently offline.
The largest hit to refined products has occurred in Russia, normally one of the world’s top suppliers of diesel. Ukrainian attacks in the past year have knocked out at least 30 percent of Russian refining capacity. As a result, Russian product exports have dropped to the lowest level in twenty years, to about 1.1 million b/d in July and August. Russia has now banned gasoline exports through January 2027, and banned diesel exports until at least September 30, although the diesel ban may be extended again. Russia typically exports diesel to Turkey and the Mediterranean region, so these countries are turning to alternative suppliers.
The other key cause of declining product exports is the conflict in the Middle East. Shipping disruptions in the Strait of Hormuz and the Red Sea along with Iranian attacks on refineries across the Arab Gulf states reduced refineries’ production to just 7.6 million b/din the second quarter of 2026, compared to 9.6 million b/d last year.
In yet another blow to global product supplies, China also cut exports, especially in the early days of the Strait of Hormuz crisis. All totaled, the International Energy Agency estimates that diesel exports from Russia, the Middle East, and Asia fell by 1.3 million b/d in July from the previous year.
Aside from these acute shocks, there is a longer-running supply challenge. Numerous refineries in Europe and the United States have shut down in recent years, especially older and less efficient facilities. While global refining capacity has risen since the turn of the century, newer and larger facilities are concentrated in the Middle East and China.
This presents two energy security challenges. Middle Eastern disruptions threaten global product balances. And spare capacity in global refining is now concentrated in China, where the government can adjust refined product export quotas with little advance warning or regard for regional or global refined product balances.
Uneven impacts
With prices elevated, refinery margins are soaring. The NYMEX 3-2-1 crack spread—an estimated margin for a refinery processing three barrels of crude oil into two barrels of gasoline and one barrel of diesel—has climbed to about $70 per barrel. In the United States, the diesel crack spread has hit an all-time high of $100 per barrel. Marathon Petroleum, Valero, and Phillips 66—three of the largest US refiners—earned a combined $12.6 billion in the second quarter of 2026.
At the same time, transportation costs are running high, hurting truck drivers and shippers. Damage to refineries in Russia may take many months to repair, and the ultimate toll on refining and petrochemicals facilities in the Gulf is uncertain. This suggests that prices of petroleum products, especially diesel, will remain high even through the weaker “shoulder season” this fall.
US product exports rise
One of the key factors containing global crude prices after February 28 was the sharp rise in US oil exports—including both crude and products. Combined US crude and petroleum product exports soared from an annual average of 10.7 million b/d in 2025 to an all-time high of 13.3 million b/d (moving four-week average) in May 2026. In recent months, US product exports helped buyers find alternatives to lost output in the Middle East and Russia.
But there is a downside to this export boom. Distillate fuel oil stocks in the United States—a category that includes diesel as well as fuel oils used in space heating and electric power generation—fell to 103.4 million barrels in the week ending on August 21. That is a record low for this time of year, ahead of the fall and winter season when demand typically increases.
Policy considerations
In response to the elevated cost of petroleum products, the White House is exploring measures to help US refiners increase production. But refinery utilization rates have already soared to as high as 98 percent as companies aim to capitalize on strong profit margins. They cannot be pushed further without compromising safety. Indeed, the greater risk is that refiners defer maintenance during the traditional fall turnaround season. Any accidents that knock out capacity could create significant challenges. The White House convened US refiners on September 1 to discuss ways to increase output and lower the cost of refined products. The lack of significant announcements after the meeting showed that options in the very near term are limited. The Environmental Protection Agency had already ended summer blend gasoline requirements several weeks ahead of schedule, which may yield marginal gasoline price benefits for a period of weeks. The administration also exempted some small refiners from biofuels blending requirements, while pledging to reallocate the difference between expected and actual exempted volumes into the 2026 and 2027 cycle. The reallocation satisfied biofuels advocates but will increase the future burden on larger refiners while doing very little to encourage more near-term refinery output.
Looking further ahead, the Strait of Hormuz disruption poses more substantive questions about the global refining system and its capacity to deliver sufficient refined products. As refining capacity gradually falls in countries with declining demand for road fuels, it will be important to ensure that national and global refining systems have enough resilience to account for outages and disruptions.
The International Energy Agency would be an appropriate venue to discuss these issues. The IEA requires its member countries to hold oil stocks sufficient to cover ninety days of net oil imports, and allows flexibility between categories such as emergency government stocks and commercial inventories, as well as between crude and refined product stocks. One response to the Strait of Hormuz disruptions should be to re-evaluate the appropriate balance between these categories or the need for minimum shares for refined products. However, technical constraints on storing fuels for prolonged periods and the cost of constructing, maintaining, and managing such facilities suggest significant limitations that will also need to be addressed.
The Strait of Hormuz shock has demonstrated the importance of inventories, and not only stocks of crude oil but refined products as well. There are no quick fixes to high diesel and gasoline prices in the United States, but this is an opportunity to devise new planning mechanisms and requirements for refined products.
Ben Cahill is a nonresident senior fellow at the Atlantic Council’s Global Energy Center.
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Image: Reuters: March 9, 2026, Anacortes, Washington, USA: A view of the Marathon Petroleum Company refinery on March Point in Anacortes, Washington, USA, on Mon., March 9, 2026. As the US and Israel attacks on Iran have caused wider conflict in the Middle East, oil shipments in the Strait of Harmuz have stopped, leading to an increase in gasoline, diesel, and jet fuel prices in the US. (Credit Image: © M. Scott Brauer/ZUMA Press Wire)