(Editor’s note: this is the second article in a two-part series, following The oil system that worked – until February 2022 (Part 1 of 2).
By the beginning of 2025, the global petroleum system was already strained from the disruptions of the previous three years. The Russia-Ukraine conflict had reshaped crude flows, diesel prices no longer tracked the price of oil, western refinery closures had tightened product markets, and the Red Sea crisis had begun to destabilize maritime logistics.
Yet the system had not ruptured.
In 2024, Bryan Clark, former U.S. Navy submarine officer and a senior fellow at the Hudson Institute, described the Red Sea fight with the Islamic Revolutionary Guard Corps (IRGC)-backed Houthis as the “the most sustained combat that the U.S. Navy has seen since World War II — easily, no question.”
The commanding officer of USS Mason later said the deployment’s near-continuous air-defence engagements were unmatched since 1945 and outpaced even the 1980s Tanker War. Recall the 1984 to 1988 Tanker War in the Persian Gulf, where the US Navy similarly had to convoy global tanker traffic through the Strait of Hormuz as Iranian weaponized its chokepoint control over the strait during the eight-year Iran-Iraq war.
That tempo – daily drones, cruise missiles, and anti-ship ballistic missiles, plus strikes ashore – was the measure, not casualties: no U.S. warship was sunk, and no U.S. sailor was killed by Houthi fire.
After President Donald Trump took office for his second term, a January 2025 ceasefire in Gaza brought a pause, and on March 15 CENTCOM opened Operation Rough Rider, a 52-day campaign in which U.S. forces struck more than 1,000 Houthi targets from the Truman and Carl Vinson aircraft carrier strike groups.
The Houthis answered with missiles and drones at U.S. warships; none hit, though evasive manoeuvres caused an F/A-18 to slide off a carrier deck into the ocean.
On May 6, 2025, after Omani mediation, Trump and the Houthis agreed to a ceasefire, and Operation Rough Rider closed until July 2026, when Houthis began targeting Saudi tanker traffic.
However, from May 2025 to July 2026, commercial shipping did not snap back.
Armed Conflict Location and Event Data Project (ACLED) recorded only 7 Houthi attacks on commercial vessels in all of 2025, against about 150 in 2024, yet Bab al-Mandab transits in June 2025 were still about 65% below June 2023 levels.
Figure 2 – Weekly Red Sea transit rates versus Houthis attacks.
Lloyd’s List counted 1,128 Bab al-Mandab transits in November 2025, the highest since January 2024, and still down 52% from November 2023.
Maersk and CMA CGM only began limited Suez returns in December 2025, and insurers still treated the route as a risk.
The five-to-sevenfold Shanghai-Rotterdam freight spike and the acute Aframax/Suezmax crude oil carrier squeeze belong mainly to the 2024 rerouting, not to a 2025 escalation.
Diesel crack spreads or the difference between the price of diesel and crude oil, widened again in 2025, reaching a $100-per-barrel spread in 2026 or roughly two times the price of oil.
Figure 3 – European refinery wholesale diesel versus Brent crude oil prices.
The Red Sea crisis alone would have been enough to reshape global petroleum flows, but the second shockwave arrived in early 2026 with far greater force.
On February 28, 2026, a series of co-ordinated US/Israeli strikes under Operation Midnight Hammer targeted Iranian military infrastructure, reportedly in response to escalating regional tensions with IRGC proxies such as Hamas, Hezbollah, and Houthis. This escalation with IRGC proxies was tied to the Hamas invasion of Israel on October 7, 2023, followed by the incursion of Hezbollah into northern Israel and the sustained attacks on US Navy and global shipping within the Red Sea for most of 2024.
Figure 4 – Operation Midnight Hammer in 2025.
Iran responded by announcing a de-facto blockade of the Strait of Hormuz, the world’s most critical energy chokepoint. Approximately 21 million barrels per day (b/d) of crude and condensate, roughly 27% of global seaborne oil, normally transit the strait.
The blockade did not completely halt traffic in March 2026, but it rendered passage sufficiently dangerous that most operators suspended transit. Several tankers were seized, and one was sunk after refusing to comply with Iranian directives. By September, tanker traffic resumed 2025 volume under escort by the US Navy.
Figure 5 – Middle East aggravated exports, Strait of Hormuz and Red Sea.
The immediate market reaction was sharp but not catastrophic.
Crude prices spiked, but not to the levels many analysts had predicted.
The muted response was due in part to the behaviour of China, which had built the world’s largest strategic petroleum reserve (SPR) over the previous decade. China responded to the blockade by reducing crude imports and drawing down its reserves.
Estimates suggest China held more than 1.4 billion barrels of combined strategic and commercial oil storage by late 2025.
By strategically releasing barrels into its domestic market, China reduced spot demand and moderated global price spikes. Call it a lesson learned from the price spike of the first shockwave (Russian invasion of Ukraine).
This behaviour contrasted sharply with the United States and Europe, which released barrels from their SPRs primarily to stabilize global markets rather than reduce domestic price shock.
China’s response to the Hormuz blockade was not merely tactical; it was strategic.
In China, the state sets a retail ceiling for gasoline and diesel every 10 working days from a basket of international crude prices, and a floor and ceiling limit how much of a crude move reaches the pump.
Elsewhere, the pump price follows wholesale gasoline and diesel prices set in London, New York, and Dubai, plus tax and a retail margin, rather than a state formula tied to crude on a fixed calendar.
These regional distinctions matter, as refineries are price takers, not setters, throughout Europe and North America.
Figure 6 – Crude oil price time series.
The 2026 Hormuz blockade underscored China’s recognition of its vulnerability to maritime chokepoints.
Beijing had already been pushing coal conversion as a hedge against imported crude, and the plants that started between 2024 and 2026 were largely coal-to-olefins units.
Note that olefins, such as ethylene and propylene, are widely used in manufacturing plastics, of which China produces upwards of 35% of global supply.
Baofeng Energy’s Inner Mongolia olefin project brought line 1 on at the end of 2024 and lines 2 and 3 in the first quarter of 2025, the first commercial use of Dalian Institute of Chemical Physics DMTO-III technology and a “green hydrogen coupled” coal-to-olefins layout, adding polyolefin capacity in Ordos.
The true coal-to-liquid (CTL) projects were still on the ground: CHN Energy broke ground in October 2024 on the Hami plant in Xinjiang, a 4-million-tonnes-a-year complex. Completion of its first phase is scheduled for the end of 2027. Yitai’s 1-million-tonnes-a-year Yili demonstration unit is aiming for trial product in 2027 and full output in 2028.
The Hormuz blockade has also exposed vulnerabilities in global strategic petroleum reserves.
The United States entered the Hormuz crisis with a depleted reserve. Its SPR held about 415 million barrels when Trump authorized a release on March 11, 2026, down from 621 million in November 2021, after a 180-million-barrel emergency sale in 2022 and congressionally mandated sales through 2023.
Figure 7 – United States strategic and commercial petroleum reserve capacity history.
Europe’s constraint was delivery. Its share of the March 2026 International Energy Agency pledge was 107.5 million barrels, but, by July, emergency stocks had fallen by only about 63 million. Washington was pressing IEA members that had released a fraction of what they offered.
The most significant loss, however, came from floating storage trapped in the Gulf.
Approximately 120 million barrels of crude stored on tankers in the region became inaccessible due to the blockade. These barrels, which had been used as flexible supply buffers, were effectively removed from global markets.
Figure 8 – Blockade trapped crude oil tankers in the Persian Gulf.
As the Hormuz blockade reshaped global flows, Venezuela underwent a geopolitical transformation that further altered the international petroleum landscape.
On January 3, 2026, U.S. forces struck Caracas before dawn and captured President Nicolás Maduro and wife Cilia Flores in Operation Absolute Resolve, ending a months-long Caribbean buildup under Operation Southern Spear.
The raid was not a proxy uprising or a negotiated exit. It was the use of direct force in a South American capital, followed the same day by President Trump’s statement that the U.S. would administer Venezuela until a transition could be arranged.
That claim, more than the indictments, revealed that Washington was no longer confining itself to sanctions, recognition battles, and naval interdiction, but asserting the right to remove a sitting government in the hemisphere and manage what came next.
The energy motive was explicit.
Venezuelan heavy crude was the spare barrel Washington wanted as Middle East flows through Hormuz collapsed, and Maduro himself had said the United States was after the oil. Furthermore, the alignment of Venezuelan heavy crude with US Gulf coast refineries came at a time when U.S.-Canada relations “ruptured”, according to Canadian Prime Minister Mark Carney.
The optics were clear for the world to see.
For the first time since the end of the Cold War, a U.S. administration treated the Caribbean basin as an operational theatre in which regime change, a tanker blockade, and refinery feedstock were parts of the same policy.
Figure 9 – Force deployment in Caribbean; Operation Absolute Resolve.
China’s influence in Venezuela declined sharply following the transition.
Chinese imports of Venezuelan crude, which had reached approximately 470,000 b/d in 2025, immediately fell as the new Venezuelan government prioritized U.S. engagement.
On numerous occasions since August 2026, Trump’s Administration has alluded to Venezuelan heavy crude being used to refill the SPR at next to no cost to the U.S. That signalled a return to the centuries-old Monroe Doctrine of U.S. supremacy within the Western Hemisphere.
The combined impact of the Red Sea crisis, Hormuz blockade, and Venezuelan realignment created a structural break in global petroleum logistics.
For the first time in modern history, two major maritime chokepoints, Suez and Hormuz, were simultaneously compromised, while the Panama Canal pivoted away from Chinese ownership to U.S. access priority.
The structural break had profound consequences for regional refining dynamics.
India emerged as a global refining superpower, exporting record volumes of diesel and jet fuel to Europe and Africa.
The United States Gulf Coast became an emerging swing supplier to the world, exporting refined products to Latin America, Europe, and occasionally Asia when freight economics allowed.
Figure 10 – Five-year United States refined petroleum product export history.
The second shockwave also accelerated active investment in alternative export corridors to the Strait of Hormuz.
Abu Dhabi’s existing Habshan-Fujairah line, the Abu Dhabi Crude Oil Pipeline, commissioned in 2012, already moves 1.5-1.8 million barrels of crude per day 360-380 kilometres from Habshan to storage and loading berths at Fujairah, on the Gulf of Oman outside the strait.
Arabian Gulf Business Insight, June 22, 2026, reported that Abu Dhabi National Oil Company was accelerating a second Habshan-Fujairah line, understood to be about halfway complete, and that Trade Minister Thani Al Zeyoudi told Bloomberg that a third line was under review.
Figure 11 – Abu Dhabi’s Habshan–Fujairah pipeline to Gulf of Oman.
On the Saudi side, Aramco’s East-West Petroline, about 1,200 kilometres from the Eastern Province to the Red Sea terminal at Yanbu, is the larger bypass, with nameplate capacity cited of 5-7 million barrels a day.
Aramco is examining two land routes, including a link to Oman’s coast and the Duqm storage complex. That is a feasibility study, reported September 27, with a projected cost of $8-15 billion and a multi-year build.
These developments reflect growing recognition that the old energy map, built around stable maritime chokepoints, was no longer reliable.
By October 2026, the global petroleum system had seemingly been permanently rewired.
The disruptions of 2022-24 had strained the system, but the shocks of 2025–2026 may have broken it and forced new architecture to emerge.
The storyline shows us that while the Russian invasion of Ukraine was the catalyst for the first shockwave, the invasion of Israel by IRGC proxies and the subsequent near-collapse of global shipping in the Red Sea were the triggers for the larger shockwave that continues today.
Their effects are ongoing, and policymakers and voters alike might want to heed the following observations:
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- A world based on just-in-time trade networks amid decade-plus calls to divest from global hydrocarbon infrastructure, have left markets, governments, and consumers entirely unprepared for the return to a multi-polar world.
- Refined petroleum product prices have decoupled from the price of oil, with no global solution in sight.
- Refinery regulations need reform so that refineries receive the same policy standing as other critical public infrastructure such as military bases, hospitals, and bridges.
- Strategic and commercial storage infrastructure should be expanded.
- A temporary, rules-based ceiling on retail gasoline and diesel price increases should be authorized during a declared supply emergency, triggered only when a published crude-price basket moves outside a fixed band, and require the ceiling to lapse automatically once the emergency ends.
(Joseph Fournier – BIG Media Ltd., 2026)