If the Middle East conflict continues through the end of this year, global crude refining would drop by an estimated 1.4 million barrels per day in the fourth quarter of 2026, with Asian facilities bearing the largest share of the decline, according to new analysis from Wood Mackenzie presented at its Asian Oil, Refining and Chemical Markets briefing on September 8, 2026. The disruption has reshaped crude supply routes and product market dynamics across Asia, while persistent Ukrainian drone strikes on Russian refineries have tightened the global refining system further, with unit outages reaching 3.5 million barrels per day in August.
Asia Pacific oil demand isn't expected to recover to pre-conflict levels until late 2027, following a projected decline of 1.24 million barrels per day in 2026. Petrochemical feedstocks—particularly LPG and naphtha in markets that depend on transit flows through the Strait of Hormuz—have faced the steepest impacts, while road fuels like gasoline and diesel have shown greater resilience. India is leading the regional recovery and is projected to surpass pre-conflict demand levels first, with Southeast Asia following behind. China's oil demand likely peaked before the conflict began, according to the analysis. Meanwhile, Asia's crude import dependency is expected to climb to 82%, requiring an additional 1.5 million barrels per day of imports by 2030, which will shift the supply mix toward long-haul shipments from the US and Latin America as the Middle East's share of Asian crude imports falls from over 65% today.
The report describes the scale of disruption to global crude refining as "without modern precedent," according to Alan Gelder, senior vice president of refining, chemicals and oil markets research at Wood Mackenzie. Gelder noted that refiners should "treat today's windfall as a down payment on transformation," warning that a lower oil price environment combined with approaching peak oil demand will quickly expose the gap between competitive and uncompetitive assets. Sushant Gupta, director of oils and refining research at Wood Mackenzie, stated that the conflict has accelerated the structural diversification of Asia's crude supply base, emphasizing that refiners capable of optimizing across a wider crude slate—particularly grades with higher middle-distillate yields—will be best positioned to capture value in this evolving environment.
The conflicts have constrained crude refining and driven margins to elevated levels, with US and European refiners postponing scheduled maintenance into 2027 to capitalize on the margin windfall. Diesel markets remain robust due to Russian export constraints, ongoing inventory drawdowns, and increased winter heating demand, while gasoline prices are expected to decline seasonally but should hold margins through year-end due to limited Atlantic Basin supply. However, Asian refining margins are forecast to ease once flows through the Strait of Hormuz resume, and with non-OPEC production growth set to outpace global demand growth in 2027 and 2028, Wood Mackenzie projects that Dated Brent will fall to the $50–60 per barrel range when transits are fully restored. Middle East crude production is recovering through shuttle transits and ship-to-ship transfers that have made the current blockade less effective, though commercial inventories in China suggest a drawdown of strategic stocks, and the pace of China's inventory rebuilding remains a critical uncertainty for price forecasts.
Looking ahead to 2035, Wood Mackenzie's analysis highlights deep chemical integration as the primary margin driver for Asian refiners, with second-generation integrated sites achieving chemical yields above 40% and delivering much higher net cash margins than first-generation facilities. By 2035, nearly 80% of top-performing refineries are expected to be Chinese assets with extensive chemical integration, while partial integration won't be sufficient for first-quartile competitiveness. Currently, about 55% of refineries exceed the global benchmark for energy intensity, indicating substantial room for improvement, and the least competitive refineries also tend to have higher energy intensity, making efficiency investments essential for both margin improvement and sustainability. The report emphasizes that refiners need to ask hard questions about where their assets sit on the competitiveness curve, as global peers are actively reshaping portfolios and for many refiners, import substitution and margin competitiveness are the same investment decision.