Analysis: How Geopolitical Turmoil Impacts U.S. Refiners


   
Karim Bastati
DTN Analyst

   VIENNA (DTN) -- Ongoing geopolitical risk from potential supply disruptions 
in Iran and Russia, along with the outlook of increasing output from Venezuela, 
have deepened volatility in oil futures since the year began -- making it more 
challenging for U.S. refiners to hedge positions and plan operations 
effectively.

   At the same time, U.S. refiners stand to profit from some geopolitical 
developments. Russia's gasoline and diesel export ban in response to fuel 
shortages caused by Ukrainian strikes on Russian downstream infrastructure have 
created opportunities for U.S. refiners to increase their international sales 
and to profit from stronger crack spreads.

   Iran's protest and U.S. threats of airstrikes against the Islamic republic 
were catalysts to the powerful but brief oil rally that marked the early days 
of 2026.

   While the Iran's government crackdown appears to have abated, as has the 
potential for reprisals warned by U.S. President Donald Trump, the risk to 
Iran's 3.2 million bpd oil output -- OPEC's fourth largest -- is not over.

   Making an example of Venezuela, the U.S. showed the world over the past 
month how far it will go in exercising its power over oil embargoes. First, it 
seized Venezuelan crude cargoes. Then, it captured the country's president 
Nicolas Maduro and compelled the interim government installed in his place to 
cooperate with the White House. Now, the Trump administration is in the process 
of transferring tens of millions of Venezuelan barrels to its control, oil that 
will be co-owned by the United States and marketed directly by U.S. entities.

   Russia's invasion of Ukraine in February 2022 catapulted crude to above $100 
bbl in what turned out to be the most impactful geopolitical event for oil in 
decades. Fast forward four years, prices are down 40% or more, with the 
downtrend beginning just a few months after the invasion as supply-demand and 
market psyche adjusted as rapidly as the exchange of hostilities between the 
warring sides.

   Through it all, geopolitical turmoil has continued to trigger wild 
fluctuations and sizable price spikes in oil. While some phenomena were 
temporary in nature, many supply risks stemming from wars, sanctions and 
embargos remain in place and raise forecast uncertainty.

   Given those factors, the variables in the Russian and Iranians sanctions are 
worthy of reexamination in hazarding a guess to the endgame they could bring.

   Russia

   The European Union's import embargoes on Russian crude and oil products -- 
as well as the G-7's price cap -- has redirected oil and refined product flows 
with a steep discount on Russian barrel pricing. With this, Western nations 
achieved their primary objective: Keep as much oil on the global market as 
possible while stymying the Kremlin's energy revenues.

   Secondary sanctions on buyers of Russian oil, however, may pose an actual 
supply risk. The U.S. has repeatedly threatened to impose punitive economic 
measures on countries still receiving Russian oil. This pressure ramped up 
during the fourth quarter of 2025 and led to many Indian refiners shunning oil 
of Russian origin. As a result, volumes of oil on water soared as already laden 
tankers struggled to find buyers. If Indian refiners remain reluctant to 
purchase Russian oil cargoes, the resulting backlog will quickly force 
production shut given Russia's limited storage capacity.

   Since mid-2025, the war in Ukraine has posed an increasing risk to global 
oil supply. Ukrainian strikes on Russian energy infrastructure last year led to 
fuel shortages in Russia and the imposition of an export ban on gasoline and 
diesel.

   Trilateral negotiations between the warring parties and the United States 
have, after an initial display of optimism, remained fruitless. The European 
Union is on the verge of adopting its 20th sanctions package against Russia, 
which will also target the oil field services sector, and potential secondary 
sanctions on buyers of Russian oil are receiving bipartisan support in the U.S. 
Senate.

   Iran

   With Trump's re-entry to the White House this year, the U.S. reimposed 
sanctions he introduced on the Islamic republic in 2018. Like the restrictions 
on Russian oil, these measures had a rather limited impact on export volumes. 
Iranian tankers sailed with turned off transponders, and Chinese shippers with 
little exposure to western financial systems still scooped up the oil, whose 
origin was often concealed after a series of ship-to-ship transfers near 
Singapore. Often rebranded as "Malaysian oil", Iranian crude has continued to 
be a staple of Chinese refiners' diet.

   As is the case with Russia, sanctions impact needs to be measured in actual 
losses of physical supply. Stricter enforcement of sanctions, U.S. attacks on 
critical infrastructure or a large-scale mass strike of oil workers are among 
the most realistic scenarios which could hamper Iranian supply.

   The current protests in Tehran pose the most serious challenge to the regime 
there and are fundamentally of a different nature than demonstrations in years 
past, which were often confined to certain ethnic groups or regions of the 
country. This time, country-wide mass protests, sparked by an economically 
precarious situation and high inflation, are actively demanding a change in 
leadership, and come at a time when the Mullah leadership there is at its 
weakest. At the same time, the option of U.S. strikes remains on the table.

   The ongoing turmoil in both Ukraine and Iran still carries potential to 
translate into substantial supply outages -- and price action. U.S. refiners, 
meanwhile, are poised to continue benefiting from sanctions on Russia and Iran, 
and the possible return of Venezuelan heavy sour crude oil flows.




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