The wars in Iran and Ukraine have combined to create a growing shortage of the fuel oil used to power ships and some power plants, with analysts projecting the first meaningful market deficit in a year, a disruption with the potential to ripple through global trade and shipping costs.
What Happened
Energy consultancy Energy Aspects told Reuters it expects the global fuel oil market to face a deficit of 218,000 barrels per day in the third quarter, the first shortfall the firm has projected since a marginal 6,000 barrel-per-day gap in the third quarter of 2025. The shortage stems from a combination of factors tied to both ongoing conflicts: reduced crude availability due to the disrupted Strait of Hormuz, and refiners’ preference for producing more profitable fuels like diesel rather than the heavier fuel oil ships and some power generators rely on.
The US-Israel war on Iran has effectively paralyzed key maritime trade routes including the Strait of Hormuz, through which roughly 20% of global oil and gas passed before the war began, directly reducing the volume of crude available for refining into fuel oil and other products. Separately, Russia’s war against Ukraine has affected fuel supply dynamics through its own disruptions to regional energy infrastructure and shipping patterns in the Black Sea and broader European energy markets.
The resulting fuel oil scarcity adds a further complication for an already heavily constrained global shipping industry, which has spent months navigating restricted transit through Hormuz and other contested waterways even before this specific fuel supply shortage began affecting vessel operating costs and availability.
Why It Matters
A sustained fuel oil shortage carries direct implications for global shipping costs, given that fuel represents one of the largest operating expenses for commercial vessels, meaning a supply deficit of this scale is likely to push freight rates higher across multiple shipping routes regardless of a vessel’s specific cargo or destination.
The shortage’s dual origin, tied simultaneously to two separate, geographically distant conflicts, illustrates how interconnected global energy and shipping markets remain even when disruptions originate from unrelated causes, with the combined effect on fuel oil supply proving more significant than either conflict’s individual impact might suggest in isolation.
For power plants that rely on fuel oil for electricity generation, particularly in regions without ready access to alternative fuel sources, the shortage could also translate into higher electricity costs or supply constraints, extending the economic impact of the two wars beyond shipping specifically into broader energy affordability.
Context and Background
Fuel oil, a heavier and typically less refined petroleum product than gasoline or diesel, has traditionally served as the primary fuel for large cargo and container ships, though refiners have increasingly favored producing higher-value products like diesel when crude supply is constrained, a dynamic that compounds fuel oil scarcity during periods of reduced overall crude availability.
The Strait of Hormuz’s disruption throughout 2026 has already driven significant volatility in crude oil prices and shipping patterns, with this fuel oil-specific shortage representing an additional, more specialized market effect layered atop the broader crude supply disruptions the conflict has caused throughout the year.
Global shipping had already been navigating substantially reduced options for several major trade routes given ongoing restrictions and security risks in the Strait of Hormuz specifically, meaning this fuel oil shortage compounds rather than introduces new operational challenges for an industry already managing significant wartime disruption.
Analysis
Energy market analysts note that the shift from a marginal fuel oil deficit a year ago to a substantially larger projected shortfall this quarter reflects the compounding effect of the Iran war’s extended duration on global refining and crude supply patterns, suggesting the disruption has moved beyond a temporary shock into a more structural market imbalance.
Some shipping industry analysts point to the timing of the shortage, arriving as vessels are already navigating restricted Hormuz transit options, as creating a particularly difficult operating environment in which ships face both higher fuel costs and continued security risks simultaneously, a combination that could accelerate further increases in global shipping rates.
Trade economists caution that the fuel oil shortage’s ultimate economic impact will depend significantly on how long the underlying conflicts, and their associated disruption to crude supply and refining patterns, continue, with a prolonged shortage likely to have more significant knock-on effects for global trade costs than a shorter-term disruption.
What Happens Next
Energy Aspects and other market analysts will continue monitoring fuel oil supply and demand balances in the coming months, given the deficit’s direct ties to the ongoing and unresolved conflicts in both Iran and Ukraine. Continued developments in either war, including further disruption to the Strait of Hormuz or Black Sea shipping, could deepen the projected shortfall.
Shipping companies and power generators reliant on fuel oil are likely to continue seeking alternative supply arrangements or fuel sources as the shortage persists, though the scale of the projected deficit suggests meaningful near-term relief remains unlikely absent a resolution to at least one of the two underlying conflicts.
