In recent interviews, U.S. Energy Secretary Chris Wright has blamed Ukraine for higher energy prices, saying that its drone and missile strikes on Russian refineries are the main reason U.S. drivers are paying record prices at the pump.
But the rapidly metastasizing war in the Middle East has made clear exactly where the true and fundamental cause of higher energy prices lies. And it isn’t in Kyiv.
In recent interviews, U.S. Energy Secretary Chris Wright has blamed Ukraine for higher energy prices, saying that its drone and missile strikes on Russian refineries are the main reason U.S. drivers are paying record prices at the pump.
But the rapidly metastasizing war in the Middle East has made clear exactly where the true and fundamental cause of higher energy prices lies. And it isn’t in Kyiv.
Some brutal numbers: Global benchmark crude prices blew past $100 a barrel again and are currently around $105. U.S. average gasoline prices spiked to $4.29 a gallon (up a dollar from a year ago), while the much more important price of diesel reached $6 a gallon for the first time ever. U.S. President Donald Trump, at a party convention in Dallas, offered voters $5,000 in cash if they vote Republican in the November midterm elections—the equivalent of 830 gallons of diesel, or about 25 fill-ups for a Ford Super Duty F-250 pickup truck.
Just to break this down. The United States and Israel launched a war six months ago on Iran, in the most energy-important part of the world. That war has messed up the entire global energy trade, which formerly worked pretty seamlessly.
There is a very entertaining debate—one in which Wright has taken part—over how open or closed the Strait of Hormuz is. That is the chokepoint just under Iran that, before the war, saw 20 million barrels of crude oil and refined products transit every day. U.S. officials maintain that the strait is open and that incredible volumes of crude are flowing out of the waterway. Independent tanker trackers, which count individual ships, their loadings, ship-to-ship transfers, and those ships’ final port calls, put the number at closer to 8-9 million barrels a day, on average. That low number and the slow pace of recovery are exacerbated by the tendency of the Iranian armed forces to blow up the odd tanker that dares to run the gauntlet. (A single tanker left the Persian Gulf on Thursday.)
But it gets more complicated because the bypass that Gulf countries, led by Saudi Arabia, created to evade the perilous strait is itself getting bypassed. Overland pipelines, such as the Saudi East-West pipeline from the Persian Gulf to the Red Sea, have been operating at full blast and were shipping out about 5 million barrels of oil a day. But they, too, are now under threat.
The Houthis, an Iran-backed rebel group in Yemen, have begun seriously attacking shipping in the Red Sea, and this week they made advances in southwestern Yemen, seizing positions on the coast and even taking a few islands. Those islands are key pieces of real estate for a group that wants to disrupt shipping, and the Houthis seem to want to do that.
“My understanding is that they have also taken control of the Hanish Islands and Zuqar and may soon take Mayun [Perim Island], the key island in the strait itself,” said Maged al-Madhaji, a co-founder of the Sana’a Center, a think tank in Yemen. “Together, these positions would give the Houthis—and by extension, Iran—far greater scope to influence shipping movements, insurance premiums, and the cost of transporting energy and other commodities.”
But the Houthis have apparently escalated even further, with reports Friday of multiple attacks on the East-West pipeline itself. That coupled with continued attacks on tankers staging near Yanbu, the Saudi port on the Red Sea, could well discourage use of the one real workaround to the Hormuz blockage.
All of this comes at a time of escalation in the actual war between the United States and Iran. Iran keeps taking shots at U.S. ships and U.S.-escorted tankers in the region, so the U.S. military has begun to blow up Iranian-owned and Iranian-linked tankers. By the latest estimates, 12 of the roughly 60 tankers in the Iranian fleet have been crossed off.
That is less of a problem for Tehran than it first seems, though, because due to the U.S. naval blockade, the country is hardly exporting any crude or refined products. That is worrisome news for a country with a moribund economy, runaway inflation, and an unstable and heavily armed leadership, but the Iranian economy has, since 1979, been built to withstand pain and likely can for a while yet. Trump this week said the Iran war will continue through the midterms, but it is not clear he is running the clock.
But to go back to the first point: Is Ukraine’s counteroffensive against Russia a source of pain for U.S. and global consumers? It is true that all year, Ukraine has used drones and missiles to devastating effect on far-flung Russian refineries and other oil installations. Kyiv has inflicted massive damage and lately has begun blasting targets in Siberia.
The latest numbers on Russian fossil fuel exports tell a story of declining volumes of exports of refined products (the country is importing gasoline) and continued stress on its refineries and, above all, its domestic energy distribution system.
What the Ukrainian strikes have not done is permanently take offline huge volumes of Russian refining capacity; drones are light, and repairs are easy.
“Our estimate is that the destroyed capacity is 12-15 percent of total Russian refinery throughput,” said Sergey Aleksashenko, a former deputy chairman of the Russian Central Bank who is now at the New Eurasian Strategies Centre. “The strikes became less intensive, and not all of the strikes are very damaging. Many strikes only stop production for a day or so.”
The reason refineries matter is because they make final products such as gasoline, diesel, and jet fuel, and that is where the real bottleneck lies, more even than in the Strait of Hormuz or Bab el-Mandeb. The International Energy Agency says global refinery throughput remains 5 million barrels a day below last year’s average, and that is with U.S. refineries running flat out. That drop is because a slice of Russian refiners, a big chunk of Middle East refiners, and some Chinese refiners are offline.
That is a problem for everyone, particularly in the developing world but also for U.S. farmers, who already face higher prices for fertilizer and farm equipment. Late summer is harvest season, and $6 diesel is unhelpful. But who’s to blame?
“Gasoline prices in the United States are the most significant issue ahead of elections, but nobody can blame Trump,” Aleksashenko said. “So they blame [Ukrainian President Volodymyr] Zelensky.”
