Energy · Geopolitics

Global Oil Supply Faces Significant Risk Amid Widespread Conflicts

A substantial portion of the world's oil production is located in regions experiencing active conflicts, raising concerns about long-term energy security and the effectiveness of diversification efforts.

News AutomationCompiled 01:08 UTC · 1 min read

Oil rigs operating in a region with geopolitical tensions, symbolizing the vulnerability of global oil supply.

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Global Oil Security Looks Shakier as Conflicts Hit 45 Million Bpd of Supply

By Irina Slav - Aug 26, 2026, 7:00 PM CDT

Nearly half of global oil supply is produced in conflict-affected countries, with the Middle East disruption alone removing an estimated 5–7 million bpd from the market.
The bigger vulnerability is increasingly refined fuels, as Middle Eastern disruptions and Ukrainian attacks on Russian refineries have tightened diesel and gasoline supplies while global refining capacity has fallen sharply.
The crisis is increasing dependence on U.S., Canadian and Venezuelan supply, but Canadian oil-sands maintenance and limited Venezuelan production growth could further tighten the market and intensify inflationary pressures.

Tanker on fire

Almost half of the world’s oil supply is produced in regions currently engaged in hot conflicts, Reuters reported this week. The situation raises questions about long-term oil supply security and the limits to diversification.

The Middle East, of course, is the most obvious and most disruptive example. While oil prices on speculative markets have remained capped by trader optimism, the physical supply of the vital energy commodity has been severely compromised, leading to rationing and emergency releases from storage across the world.

Meanwhile, Ukraine is pursuing a campaign of bombing Russian refineries with drones in a bid to persuade Moscow to make concessions regarding their conflict. So far, this has not happened, but the drone attacks have resulted in fuel shortages that have sent a ripple effect beyond the Russian borders because the country was the world’s second-largest fuel exporter after the United States.

The Gulf states, by the way, were also, together, large exporters of refined fuels, which is why many analysts are now warning that the crisis in fuels is the one that needs to be addressed, not the situation in crude oil. Addressing it, however, would be quite difficult because the world’s refining capacity has shrunk considerably over the past decade or so, specifically in Europe, which is now struggling with the consequences of those developments, with diesel prices 70% higher than they were in February due to the continent’s dependence on imported fuels. Related: Natural Gas, Not Oil, Is Key Inflation Concern in Europe

Over the past couple of months, the Middle Eastern conflict has also expanded, as it tends to happen in the region, with another major oil chokepoint under threat from attacks by the Yemeni Houthis. Indeed, attacks have already taken place, forcing shippers to re-route to alternative channels, such as the Suez Canal. This means longer journeys for tankers, which adds costs to the final price of the cargo, on top of the war premium already crushing demand in poorer countries.

The latest reports from the Middle East once again pushed oil prices lower, saying that Iran and Oman were discussing joint management of the Strait of Hormuz. The discussions were perceived as a sign the waterway could be reopened soon, despite Iran’s threat to not let a drop of oil out of the Persian Gulf if the U.S. went forward with its latest idea of pressuring Iran economically, with more sanctions.

Developments in Russia and Ukraine are no more optimistic. Ukrainian forces continue striking refineries on a daily basis, and while repairs have already brought back several facilities online, repairs take time, during which time fuel supply is constrained—and the ban on gasoline and diesel exports is still very much in place.

All these events have increased the world’s reliance on U.S. crude and refined fuels, with the latter dependent on heavy crude supply from Canada and Venezuela. Now, this heavy crude supply may move lower.

In September, Canadian crude oil production may drop by 300,000 barrels daily due to maintenance activities in the oil sands, Rystad Energy said this week. Usually, whenever such a seasonal disruption occurs, it gets offset with crude from storage. Unfortunately, crude in storage is also lower than usual—the lowest in 12 months, per the report. And maintenance cannot be skipped.

Meanwhile, Venezuela’s oil exports are falling—moderately but enough to cause concern in those of a wary nature due to the reason for the fall. The July daily average stood at 1.16 million barrels, down from 1.2 million barrels in June. The reason, as reported by Reuters, was lower withdrawals from storage. This means that Venezuela was not exporting more crude because it was producing more but because it was withdrawing it from inventories. As these decline, so would exports until PDVSA and its new/old partners from the United States and Europe manage to speed up the production expansion.

According to Reuters, the countries involved in all these conflicts—and that includes Venezuela—last year produced 43% of the world’s oil, or 45 million barrels daily. Now, supply from the Middle East is down by between 5 and 7 million barrels daily, according to various analyst estimates, and global refining capacity is down by 10% because of the wars in the Middle East and Ukraine.

The effects are already trickling in. Inflation is rising everywhere, and in the United States it contributed to yet another increase in debt to an all-time high of $40 trillion. Elsewhere, the effects of the energy crisis are fueling a race for securing alternative oil—and other energy—supply. The race has so far produced ideas for several pipelines, a renewed appetite for solar power, and higher EV sales in Europe, which may be struggling financially but will always have money for EV subsidies.

How long the current state of affairs will continue is hard to say. The war that the U.S. and Israel launched against Iran on February 28 was supposed to last a few weeks. But then, Iran was not supposed to shut down the Strait of Hormuz. However long the current disruption lasts, the world will inevitably adjust. The problem is that this adjustment will be painful.

By Irina Slav for Oilprice.com

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