Why Fuel Prices Are Rising in Europe
Persian oil, the Strait of Hormuz, and why 13.5% of the market is a lot. Breaking down the chain from barrel to gas station.
Yesterday I was discussing the situation with fuel prices in Europe with my lawyer. I think it’s worth weighing in.
There are many major import sources of oil into Europe, but we’re specifically interested in oil that passes through the Strait of Hormuz — meaning only grades from the Persian Gulf (Iraq, Saudi Arabia, Kuwait, UAE).
Share of Persian Gulf Oil in Europe’s Energy Supply
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Saudi Arabia — 0.66 million barrels/day (7.2%) Used primarily at Mediterranean refineries (Italy, Spain, Greece)
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Iraq — 0.57 million barrels/day (6.3%) Iraqi oil is one of the main sour grades replacing Russian Urals
Kuwait and UAE combined account for less than 1% — their primary export market is Asia. The reason is simple: freight and insurance are cheaper, as the journey to Asia takes 7–20 days versus 30–45 days to Europe.
Main Refined Products
Persian Gulf oil is predominantly medium or heavy sour crude. Why does Europe buy it? European refineries were historically configured for medium sour crude (previously Russian Urals). Since 2022, Iraqi and Saudi grades have closely matched those specifications.
The primary product refined from this oil is diesel. The European economy is heavily dependent on it: freight transport, industry, heating.
Now imagine 13.5% of the entire oil market freezing up — that’s not a pleasant situation. Of course, diesel isn’t made exclusively from Persian oil. There’s also North Sea crude, Caspian, and American. But all of those grades are light, and refining them into diesel requires different refinery configurations — most refineries are set up for medium-weight crude, which produces diesel more directly.
Beyond the shortage of Persian oil, prices have risen across all major grades imported to Europe. Together, these are the main drivers of rising per-liter fuel costs.
What Happens Next
My personal view: the price increases are a temporary market reaction to supply shortages and a short-term spike in prices for other crude grades. Donnie has repeatedly stated that he and his team are working on stabilizing oil prices and ending the “SMO” in Iran. Though, on the other hand, trusting the orange man these days means having no self-respect…
We’ll see, but IMO — don’t worry about “short-term inflation,” as it’s driven by panic, not real fundamental forces.
© Seal