Refiners are winning the war

Airlines are losing money and carmakers have stalled, but refiners are doing very nicely out of the Gulf crisis. Big export refineries in Saudi Arabia and the UAE have been cut off from world markets, product cracks have jumped to record highs, and American refiners that are still running are collecting cash at a rate few of them have seen before.

What a crack spread measures

A refiner's margin is the difference between what it pays for crude and what it earns from the products it makes, known in the trade as the crack spread. A common benchmark assumes that three barrels of crude yield two of petrol and one of diesel. When products become scarcer than crude, the spread widens and refiners earn more on every barrel they process, regardless of whether crude itself is cheap or dear. A closure that removes refined products from the market as well as crude is therefore close to ideal for a refiner outside the war zone.

Diesel runs short

Closing Hormuz trapped more than crude. It also bottled up millions of barrels a day of ultra-low sulphur diesel, jet fuel and naphtha from the Gulf's modern mega-refineries. Pull that much product out of the market at once and middle distillates run short everywhere. Refiners on the US Gulf Coast and in Europe that can source crude from outside the Gulf are now earning diesel cracks above $50 per barrel, and most of that drops straight into free cash flow.

The Gulf's refining industry was built for export. Plants at Jubail and Ras Tanura in Saudi Arabia, Ruwais in Abu Dhabi and Al-Zour in Kuwait are among the largest and most modern in the world, designed to ship diesel and jet fuel to Europe, Africa and Asia. Their growth over the past decade let older, less efficient refineries in Europe and elsewhere close without causing shortages. With that capacity stranded, the world has less spare refining than it had a decade ago, and prices have to rise until demand fits.

Europe's exposed position

Europe is especially short of diesel. When the European Union banned imports of Russian refined products in February 2023, it replaced them largely with cargoes from the Gulf, India and the United States. Losing the Gulf supply reopens that gap, and Indian refiners that process Gulf crude have their own supply problems. European buyers are therefore bidding for American and other Atlantic Basin cargoes, which lifts margins on the US Gulf Coast even further.

The last comparable squeeze came in 2022, when Russia's invasion of Ukraine disrupted diesel flows and cracks rose to levels not seen before. American refiners reported record profits that year and used much of the cash on buybacks and debt reduction. The industry's response then offers a guide now: capacity cannot be added quickly, because new refineries take years to build, so the gains accrue to whoever is already running.

Why American refiners gain most

American refiners have an advantage over most of their foreign rivals: access to domestic crude and to heavy Canadian oil by pipeline, neither of which passes through Hormuz. Plants on the Gulf Coast can run at high utilisation while competitors in Asia cut runs for lack of crude. Independent refining companies, whose earnings depend almost entirely on margins rather than on oil production, are the purest beneficiaries, and integrated oil majors with refining arms gain on both sides of the business.

The industry went into the crisis with less spare capacity than it once had. Several refineries closed or announced closures in 2024 and 2025, among them plants in Houston and Los Angeles, as owners concluded that older sites would struggle against newer competition and the long-term decline in petrol demand. Europe lost capacity too, including the refinery at Grangemouth in Scotland, which stopped processing crude in 2025. Those closures made sense in a world of ample Gulf supply. They leave the remaining plants with pricing power now that the supply has vanished.

Airlines feel this more than most. Many airlines hedge fuel using crude oil contracts, which protect them against rising crude prices but not against a widening gap between crude and jet fuel. When refining margins soar, a hedged airline still pays the extra, and the refiner collects it.

Goldman sees $100 all summer

Goldman Sachs's commodities team repeated its view that if the strait stays closed, Brent will hold above $100 through the summer. Refining margins would stay high along with it.

Asia's refiners are caught on the other side. Plants in South Korea, Singapore and India that depend on Gulf crude have had to cut runs for lack of feedstock, and many of them are exporters of diesel and jet fuel in their own right. Their lower output removes more product from the market, which tightens supply further and widens the margins of refiners that still have crude to process.

Who pays, and the risks to the windfall

The cost falls on everyone who buys fuel. Airlines, lorry fleets, railways, farmers and shipping companies pay the higher diesel and jet prices directly, and consumers pay through freight costs embedded in almost everything they buy. Diesel matters more to inflation than its share of household spending suggests, because it moves goods.

The windfall is not guaranteed. Very high product prices destroy demand, as haulage firms cut trips and airlines trim schedules. Governments may also intervene: in 2022 some politicians in Washington floated limits on fuel exports to hold down domestic prices, and European countries imposed windfall taxes on energy companies. A ceasefire that reopened the strait would release trapped product and crush cracks quickly. Refiners' share prices already reflect part of the windfall, so investors buying now are betting on its duration more than its size.

The signals to watch are diesel and jet crack spreads in New York, the US Gulf Coast and north-west Europe, weekly American distillate inventories, refinery utilisation rates, export volumes of refined products, and any talk in Washington of export restrictions. For as long as the strait stays shut, Western merchant refiners will probably keep posting record margins through the summer. Their customers, from airlines to lorry fleets, will be paying for it at the pump.