War leaves West more reliant on Asian fuel

The war in Ukraine is strengthening the role of Asia and the Middle East as the world’s main providers of fuels like diesel and gasoline that are crucial to the global economy.

As Europe and the U.S. seek to cut off their dependence on Russian petroleum products, they are facing a shortage of supplies at home. That’s opening opportunities for mega-refineries in places like China and Kuwait to flood the market with fuel.

“By turning their back on Russian oil products, Europe and the U.S. are increasing their dependence on long-haul barrels from the Middle East and Asia,” said Eugene Lindell, head of refined products at industry consultant FGE, based in London.

Russia’s invasion is creating a greater disparity between the two regions after Western nations significantly cut refining capacity in recent years, while the other side of the world has been expanding.

Western markets including the Americas and Europe shut down a net 2.4 million barrels a day of refining capacity in the last three years, while the Middle East and Asia added 2.5 million barrels, according to FGE.

That gap is expected to widen. About 8 million barrels a day of new refining capacity is set to come online in the next three years, with Asia adding the most and Europe the least, according to estimates by Rystad Energy.

“We will see Asia and the Middle East increasingly becoming the fuel suppliers of the world,” said Mukesh Sahdev, head of downstream practice for Rystad. East-West flows of refinery products “will become more structural,” he added.

The seismic shift in the global refining industry was hastened during the pandemic, when older plants were shut as global lockdowns decimated oil demand. China has since brought on larger and more sophisticated refineries to meet the nation’s growing need for oil.