Summary of Key Points
The ongoing Russo-Ukrainian war, coupled with the potential U.S.-Israel-Iran conflict in 2026, has led to a "superprofit cycle" for the global refining industry. Refining profits (refining margin) in Europe and the United States have exceeded $60 per barrel, with refineries operating at full capacity. Russian refineries have been severely impacted by large-scale attacks from Ukrainian drones, forcing them to ban the export of diesel and facing a domestic oil shortage. Meanwhile, India has seized this opportunity, leveraging its strong refining capabilities and diverse crude oil imports to become a "flexible supplier" of fuel, delivering supplies wherever there is demand and experiencing a surge in exports, thus rising in the global energy landscape.
Detailed Analysis
1. Wars Drive Refineries to Massive Profits
Refining profits refer to the difference between the cost of purchasing crude oil and the price at which the refined products (gasoline, diesel, etc.) are sold. Currently, this margin has reached record highs in Europe and the U.S., with diesel margins exceeding $60 per barrel in Europe and reaching $64.58 per barrel in the U.S.
The reason for these profits is the severe supply shortage: Russia has banned diesel exports (due to damaged domestic refineries), and the Middle East conflict has reduced local refining capacity, while global fuel inventories have dropped to multi-year lows (U.S. diesel inventory at its lowest level in five years). With demand far exceeding supply, prices have soared, and refinery operating rates are near 100% (96.2% in the U.S., with some regions at 100%), resulting in substantial profits.
2. Ukrainian Drone Attacks Paralyze Russian Refineries
Since March 2026, Ukraine has used drones to target Russian refineries. At least 24 of the 34 large refineries have been attacked more than 50 times, including the largest one in Omsk, located 2,000 kilometers from the front line. As a result:
- Russia's crude oil processing volume has dropped to its lowest level since 2005 (by 1.4 million barrels per day).
- Domestic gasoline production is insufficient (110,000 barrels per day needed versus only 90,000 produced), leading to long queues at gas stations and sales restrictions; teachers have even been called upon to maintain order.
- Russia has had to ban the export of gasoline and diesel and now relies on imports from India and Belarus (400,000 barrels per month).
Russia, once one of the largest diesel suppliers globally, is now struggling to meet domestic demand, exacerbating the global diesel shortage.
3. India Emerges as a Fuel Supplier
India, previously a major crude oil importer (90% of its needs met by imports), has transformed into a flexible supplier of fuel. Its advantages include:
- Strong refining capacity: It is continuing to expand its refining capacity, with an increase of 15% by 2030.
- Diverse crude oil sources: It imports from Russia, Saudi Arabia, the U.S., West Africa, and other regions, reducing dependence on any single supplier.
- Flexible exports: In July 2026, India exported 1.4 million barrels of refined products per day, a 50% increase from May. While it mainly sold to Africa before, it has now shifted to Europe and Turkey due to higher demand there.
The Indian government has implemented measures to balance the market, such as doubling diesel export taxes to ensure domestic supply while still allowing companies to make profits. During global fuel shortages, Indian refineries are often the first choice for suppliers.
4. The Global Fuel Market is Extremely Tight
With Russia's diesel supply cut and Middle East refineries damaged, countries in Europe, Brazil, and Turkey are turning to the U.S., India, and the Middle East for oil. For example:
- European diesel margins have exceeded $60 per barrel, prompting Brazil and Africa to increase imports from India.
- U.S. diesel wholesale prices rose by 26% in July, with inventory levels at their lowest in five years.
- Asian refineries are facing delays in crude oil deliveries due to the Middle East conflict, limiting production capacity.
The market is highly vulnerable; even minor disruptions (such as hurricanes or refinery failures) could lead to further supply shortages and price increases.
5. A Shift in the Energy Landscape
India has moved from being a major oil importer to a supplier of refined products. Previously, Saudi Arabia controlled global oil production, but now India is emerging as a significant player in the refined fuel market:
- It has shifted from importing crude oil for domestic use to importing cheap crude and refining it into high-priced products for export, earning profits from the difference.
- Russia's loss of its diesel supply position has been filled by India, which will likely gain more influence in the global fuel market as its refining capacity continues to grow.
In summary, the war has disrupted global fuel supplies, with European and U.S. refineries reaping huge profits while India has become a new player in the energy landscape, reflecting a significant shift in the global energy balance.