JPMorgan: The key issue in the current oil market is not Iran, but Russia.

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The focus of the global crude oil market is undergoing a fundamental shift. JPMorgan believes that while supply disruptions in the Strait of Hormuz still affect market nerves, the real variable determining the trajectory of the global energy landscape has quietly shifted to refining capacity — and at the core of this clue is Russia.

Natasha Kaneva, Head of Commodities Research at JPMorgan, pointed out that the latest round of US-Iran conflict has once again reduced the volume of crude oil transit through Hormuz, but after months of supply fluctuations, the market has gradually adapted to viewing crude oil supply as a dynamic issue — barrels may disappear but can return relatively quickly. The refining segment is far less flexible. Currently, global refinery daily throughput has plummeted by 8.2 million barrels/day since the start of the year, with Russia contributing about 20% of that decline, making it one of the largest variables dragging down global refining activity.

This situation has already had a direct impact on the market: Russia’s exports of diesel and fuel oil have plunged by about two-thirds from their peak, further tightening the already tight global distillate market and keeping refining spreads at exceptionally high levels. JPMorgan judges that even if the situation in Hormuz stabilizes, the tightness in the refined products market may persist until 2027.

Three Major Refining Uncertainties — Russia Most Overlooked

Kaneva noted that the current uncertainties constraining the global refining system come from two directions.

The first is the Middle East. JPMorgan has tracked more than 30 attacks on refineries and oil processing facilities in the region, but the actual extent of physical damage is hard to assess. The region has a refining capacity of 11.7 million barrels/day; how much can be quickly restarted remains undetermined. JPMorgan’s base scenario assumes only 250,000 barrels/day of capacity will remain offline by year-end, but the bank admits its confidence in this estimate is low.

The second, also the most easily underestimated by the market, is Russia. Over the past three months, Russia’s refining system has endured intense drone strikes by Ukraine, damaging not only refineries and storage facilities but also secondary processing units that determine product yield, such as hydrocracking, catalytic cracking, and reforming, which have been repeatedly targeted. As of June, Russian refinery throughput has dropped to 3.8 million barrels/day, down 1.5 million barrels from the start of the year.

Fuel Shortages Spreading in Russia — Beyond Consumption

The fuel situation in Russia has evolved from a consumption issue to a broader operational crisis.

The shortage has spread to regions with local refineries, as supplies are prioritized for Moscow. The strategic logic behind Ukraine’s targeting is clear: in 2026, strikes on refineries supplying the capital accounted for 39%, up from 22% in 2025.

Coinciding with Russia’s “dacha season” peak, millions drive to country cottages; seasonal gasoline demand hits its annual high, increasing the visibility of the shortage. Some regions see multi-day queues at gas stations, limited sales, and even supply interruptions at major retail chains. Retail fuel prices have surged, with some independent stations reportedly charging over 50% above normal. The shortage has spread from private car owners to agriculture, public transport, utilities, logistics, and small businesses. In August, as the southern region’s harvest season starts, diesel demand will enter its annual peak, further intensifying supply pressures.

The Russian government’s response focuses on maintaining short-term fuel availability, including importing gasoline from Belarus and India, approving tax amendments to incentivize higher blending ratios, allowing refineries to produce lower-spec Euro 3 gasoline instead of Euro 5, and tightening export controls on gasoline, jet fuel, and diesel. These measures essentially manage fuel shortages at the margin, rather than restoring refining capacity itself.

Russian Refining Crisis Spills Over to Global Markets

Damage to Russia's refining system has deeply impacted the global supply pattern. Unable to absorb domestically, Russia is redirecting more crude oil to export markets, with exports nearing record highs, further exacerbating global crude oversupply; meanwhile, refined product exports have plummeted.

Russia’s role in global refined product trade is pivotal: it is the world’s second largest diesel exporter, supplying about 12% of global diesel exports (about 800,000 barrels/day); it is also the world’s largest fuel oil exporter, with about 16% of global fuel oil exports (about 900,000 barrels/day). For this reason, disruptions in Russia’s refining system impact refined product markets far more than the crude market itself.

Before the surge in Ukrainian drone attacks, Russian refineries typically processed about 5.3 million barrels of crude daily, producing about 2 million barrels of diesel, 1 million of gasoline, 900,000 of fuel oil, 300,000 of jet fuel, and 1.1 million of other refined products. Domestic consumption absorbed most gasoline and jet fuel, while about half of the diesel and almost all fuel oil were exported. This normal operating level is the reference for current supply gaps.

JPMorgan: Gradual Recovery, Downside Risks Dominate

JPMorgan’s core assessment is that disruptions to Russia’s refining capacity have shifted from sporadic disturbances to a systemic problem. Since late March, Ukrainian actions have moved from scattered harassment to a strategic campaign aimed at systematically weakening Russia’s refining and fuel distribution system. Notably, these secondary units are much more complicated to repair than atmospheric distillation units, and downtime could extend from weeks to several quarters.

JPMorgan’s base scenario expects Russian refining throughput to gradually recover from the current 3.6 million barrels/day to about 4.5 million barrels/day by early 2027, averaging 4.7 million barrels/day in 2027. This forecast assumes drone attacks will ease after Russia’s September elections.

The upside risk is: if Ukrainian drone attacks suddenly cease, most damaged units could be rapidly restored, and throughput could rebound significantly within one to two months. Downside risks are equally significant — Ukraine has already demonstrated the capability and resolve for large-scale precision strikes on Russia’s heartland; the key market unknown is how long this offensive can be sustained.

Upstream, constrained by downstream bottlenecks, Russian crude oil output has fallen to 8.7 million barrels/day, down about 600,000 barrels from the start of the year, close to the actual capacity of export infrastructure. Russian oil companies' capital spending has shifted noticeably — overall expenditures continue to grow, but upstream investment is flat, with funds prioritized for refinery repairs, equipment replacement, and domestic fuel security. JPMorgan expects Russian crude production to slowly recover, reaching about 9 million barrels/day by year-end, and stabilizing at about 9.2 million barrels/day in 2027.

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