War Drives Global Refining Boom and Big Oil Profits

The ongoing conflict in the Middle East has triggered a significant surge in global refining margins, delivering record-breaking profits to major international oil companies. For the second time within this decade, war has disrupted global energy markets, pushing prices for refined products to multi-year highs while crude supplies face logistical challenges near the Strait of Hormuz.

Refining margins have reached unprecedented levels because the supply of finished petroleum products remains significantly tighter than that of raw crude oil. This disparity is driven by a combination of factors including export bans from Russia, refinery outages in conflict zones, and reduced throughput in Asia following temporary Chinese restrictions on exports. Despite volatility in crude prices over recent months, global supplies of gasoline, diesel, and jet fuel have tightened considerably as markets struggle to maintain flow through constrained shipping lanes.

Major oil supermajors reported their strongest second-quarter earnings since the Russian invasion of Ukraine in 2022. Shell more than doubled its profits from a year earlier, driven by record refinery utilisation rates which reached over 100 per cent during April and June. The company also benefited from soaring global indicative refining margins that rose to $24 per barrel compared with $17 in the previous quarter.

TotalEnergies saw adjusted net income jump by nearly two-thirds year-on-year, reaching six billion dollars for the second quarter of 2026. European refining margins for the supermajor increased sharply, soaring almost threefold from the first half of 2025 to reach $12.4 per barrel. The company attributed its exceptional performance to managing supply tensions effectively while maximising captured margins in a distorted market environment.

US-based giants ExxonMobil and Chevron also reported their highest earnings in years despite facing political criticism regarding profit levels. President Donald Trump recently stated that these companies are making excessive profits and suggested they should return some funds to the public or reduce retail prices for consumers. Chevron CEO Mike Wirth highlighted that middle distillates remain particularly tight, noting that European diesel demand could rise as heating oil stocks restock ahead of winter.

ExxonMobil expects continued robust refining market conditions with very high margins persisting into the third quarter and potentially beyond. Even if supply disruptions resolve by year-end and flows from the Middle East are restored, low global inventories and the necessity to rebuild stockpiles could support the global refining complex for several more quarters.

The International Energy Agency has warned against complacency regarding oil security amid escalating hostilities and continued drawdowns of commercial stocks. While IEA countries still hold substantial government-controlled reserves exceeding one billion barrels, executive director Fatih Birol noted that refinery activity has not kept pace with crude deliveries. This imbalance means markets for refined products remain considerably tighter than those for raw materials.

Analysts suggest that the combination of restricted supply and limited refining capacity will continue to fuel high profits in the short term. The situation reflects a broader trend where geopolitical instability creates bottlenecks at specific stages of the energy value chain, benefiting operators who can navigate these constraints effectively while global demand remains resilient.