Wars, Sanctions and Logistics Bottlenecks Are Pressuring Fuel Prices Across the Atlantic Basin
Updated: 6 hours ago
As the war in the Middle East drags on, US President Donald Trump has been looking for ways to rein in inflation and ease consumer frustration ahead of the midterm elections, amid pressure on fuel prices. Among the measures under discussion is easing sanctions related to Russia and Iran.
In an interview with journalist Débora Oliveira of CNN Brasil Money, Marcus D'Elia, a partner at Leggio Consultoria, analyzed the factors keeping gasoline and diesel prices under pressure in the United States, Europe and South America. According to him, the situation combines the effects of two conflicts (the Middle East and Ukraine), the attacks on Russian refineries and limited availability of ships to transport oil.
Attacks on Russian Refineries and Sanctions Pushed Up Prices of Refined Products
D'Elia explains that, on top of the war in the Gulf and the war in Ukraine, the picture grew more complicated with Ukrainian attacks on Russia's refining sector. According to him, the combination of factors put pressure on prices across the Atlantic Basin, which includes North America, South America and Europe:
Attacks on Russian refineries cut the global supply of refined products
US sanctions on Russia limited the movement and sale of refined products from other countries to Europe
Europe came to rely more on local refining to meet fuel demand
In D'Elia's view, the goal of the sanctions relief from the United States is to address the immediate problem: the rise in diesel and gasoline prices.
Sanctions Relief Will Only Lower Prices If Europe Follows Suit
In D'Elia's assessment, easing sanctions on Russian oil, fuel oil and diesel is one possible solution, but it requires alignment with the European Union, where the additional diesel and gasoline demand is. According to him, Europe has not been lifting these sanctions, and countries such as India and Turkey, which supplied fuel to the continent before the war, remain constrained by those restrictions. "If Europe doesn't do the same, these sanctions won't achieve the goal of bringing down the final price of fuel," he said.
Alternative Routes Ease Costs but Don't Normalize Operations
D'Elia describes a logistics setup created to move oil through the Persian Gulf region. In this model, the ships that receive the oil stay in the Gulf of Oman, outside the Persian Gulf, while shuttle tankers make the short run between the port and that area. The vessels that cross the war zone face higher freight rates because of insurance and risk, while the tankers that take on oil in the Gulf of Oman are less exposed to that cost.
Another option is for Saudi Arabia to move oil through its pipeline to the Red Sea and on through the Suez Canal, avoiding the Bab al-Mandeb strait at the southern end of the Red Sea. According to D'Elia, these strategies reduce some of the added insurance costs but have a limited effect and don't normalize maritime shipping. The price premium continues to affect crude oil and, as a result, the final price of refined products.
The Ship Shortage Already Exists and Has No Short-Term Fix
Asked about the availability of vessels, D'Elia says the problem already exists today and that the use of the so-called shadow fleet is precisely a response to the limited number of ships available for transport. The tanker fleet can't be expanded quickly enough to make up for the added travel time.
In his view, the way forward is to normalize flows out of the Persian Gulf and the Red Sea, which would balance the number of vessels against the time it takes to move the product. The obstacle, according to D'Elia, is that there is no way to end these conflicts right now.
Watch Marcus D'Elia's full interview on CNN Brasil Money: https://youtu.be/zibu6-hR6wY?si=f4hVKgjHCNZmIhGP
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