US-Iran conflict to cut global fuel demand by 2.4mbpd

Refined petroleum products are the usable fuels and industrial feedstocks produced when crude oil is processed in refineries. They power vehicles, aircraft, ships and machinery, and supply petrochemical plants. Their demand shows how transport, household energy and manufacturing are responding to the conflict.

The article includes gasoil and diesel, liquefied petroleum gas, naphtha, gasoline, jet fuel, kerosene and fuel oil. Diesel supports road transport and industry. LPG is used for cooking and petrochemical production. Naphtha is an important petrochemical feedstock. Gasoline powers cars, while jet fuel and kerosene serve aviation.

These products do not respond equally to disruption. Diesel is projected to suffer the largest decline, while LPG and naphtha also fall sharply because supplies to petrochemical plants tighten. Jet fuel demand drops as aviation is restricted. The mix matters because different products depend on different supply chains and end uses.

The projected 2.4 million-barrel-per-day fall is a major demand shock across global refined fuels. It reflects several pressures arriving together: disrupted supplies, higher fuel prices, restricted shipping and aviation, and weaker industrial activity. The decline is expected to be concentrated in the second and third quarters of 2026.

Diesel and gasoil account for the largest listed reduction, falling by 500,000 barrels per day. LPG demand is projected to drop by 460,000 barrels per day, while naphtha falls by 350,000. Gasoline declines by 330,000 barrels per day. Jet fuel and kerosene decrease by 200,000, and fuel oil by 120,000.

These figures show that the shock reaches both transport and industry. LPG and naphtha losses point to weaker petrochemical operations. Gasoline, diesel and aviation declines show reduced mobility. Together, the listed product losses total 1.96 million barrels per day, with other effects making up the wider 2.4 million decline.

When shipping and aviation are restricted, fewer flights and voyages take place, so demand for jet fuel, kerosene and marine fuels falls. Higher retail prices create another squeeze. Households and businesses reduce driving or other fuel use, and transport operators seek ways to limit consumption. Government conservation measures reinforce those changes.

The article links these pressures to a projected 330,000-barrel-per-day decline in global gasoline demand and a 200,000-barrel-per-day fall in jet fuel and kerosene demand. Airspace closures directly reduce aviation activity. Shipping restrictions also displace bunkering from key Gulf hubs, changing where marine fuel is consumed and weakening demand in affected markets.

The effect is strongest when disruptions and prices peak. Kpler expects the largest demand losses in the second and third quarters of 2026. Consumption should improve as trade flows normalise, fuel prices ease and air travel recovers. Yet electric vehicles, gas-powered trucks and other substitutions may prevent a complete return to earlier demand levels.

China and India are especially exposed because Middle Eastern supplies form a large part of their LPG import systems. When conflict disrupts shipping or reduces available cargoes, replacement supplies may not arrive quickly enough. The result is weaker household and industrial consumption, especially in markets that cannot easily switch feedstocks.

China’s petrochemical industry is vulnerable because about half of its seaborne LPG imports use trade routes through the Strait of Hormuz. Chinese propane dehydrogenation plant operating rates fell below 50 per cent in late April, their lowest level in five years. India sourced more than 90 per cent of its LPG imports from the Middle East before the disruption and introduced rationing.

Asia is expected to account for most of the global LPG decline, with demand falling by 370,000 barrels per day in 2026. China’s decline is forecast at 230,000 and India’s at 100,000. Supply improvements support recovery, but India’s 2027 increase is limited to 60,000 barrels daily.

LPG and naphtha are not only energy products; petrochemical plants use them as raw materials. If supplies tighten, plants cannot maintain normal production. They may cut operating rates, draw down inventories or stop units altogether. That reduces demand for the very feedstocks that plants normally buy.

China provides a clear example. Its propane dehydrogenation plants fell below 50 per cent operating rates in late April as LPG availability tightened and margins deteriorated. Asian naphtha imports also fell sharply. The shortage forced petrochemical plants to reduce production, use inventories and, in some cases, declare force majeure. Asian naphtha consumption fell an estimated 830,000 barrels per day year-on-year in May.

This creates a chain reaction: disrupted imports reduce plant activity, and weaker plant activity cuts feedstock demand. Operations can recover when supplies improve. Chinese propane dehydrogenation plants later reached about 70 per cent by August, while global naphtha demand is projected to rise by 470,000 barrels per day in 2027.

Oil-product demand can recover after a supply shock, but alternatives can permanently limit that recovery. Electric vehicles reduce the need for gasoline and diesel. Liquefied natural gas in trucks replaces some road-fuel demand. Piped natural gas can reduce household reliance on LPG. These changes matter because they alter consumption even after prices and trade flows normalise.

India illustrates the household shift. It introduced LPG rationing during the supply shock, and the government is promoting piped natural gas connections among urban households. As a result, Indian LPG demand is forecast to increase by only 60,000 barrels per day in 2027, despite higher imports and recovery during the fourth quarter of 2026.

The article also identifies wider substitution. Electric vehicles can limit petrol and diesel recovery, while LNG trucks restrain road-fuel demand. Gas replacing fuel oil in power generation further weakens fuel-oil consumption. These alternatives make the rebound uneven across products and regions rather than a full return to previous trends.

The 2027 rebound reflects an easing of the conditions that caused the 2026 decline. Trade flows are expected to normalise, feedstock availability should improve, fuel prices should ease and air travel should recover. Together, these changes allow transport operators, households and petrochemical plants to resume more normal activity.

China’s LPG market shows the mechanism. Supplies improved after plant operating rates fell below 50 per cent, and rates later recovered to about 70 per cent. Chinese LPG demand is projected to rise by 170,000 barrels per day in 2027. Naphtha demand is expected to recover by 470,000 barrels per day globally, led by China’s 230,000-barrel-per-day increase.

Recovery will differ by product and region. Electric vehicles, LNG trucks and gas replacing fuel oil limit some oil demand. Japan and South Korea face competition from new Chinese petrochemical capacity and plant closures or rationalisation. India’s LPG rebound also remains modest because piped natural gas is expanding.