Refining margins amplify Middle East crude oil shocks at the pump

Following the Middle East conflict, Brent crude prices surged to 138 dollars per barrel in April 2026, driving euro area retail diesel to 2.18 euros per litre.

Pre-tax crude price increases pass through fully within one to two months, translating each 0.10 euro per litre crude rise into an equivalent 0.10 euro pre-tax pump increase.

However, a 90 percent jump in crude translated to only a 34 percent rise in retail diesel.

This divergence occurs because fixed excise duties averaging 0.52 euros per litre and VAT dampen relative percentage swings.

Distribution margins fell 14 percent, partially absorbing costs, while temporary national excise duty cuts further cushioned immediate consumer impacts before expiring in June.

Refining costs and margins widened significantly during the energy shock, expanding from 0.10 euros per litre in February to 0.26 euros in March and reaching 0.35 euros in July.

The closure of the Strait of Hormuz reduced global refined product exports by 4.5 million barrels per day in the second quarter of 2026.

This bottleneck amplified crude price spikes at the pump and drove euro area fuel HICP inflation from -3.1 percent in February to 10.8 percent in May.

Futures indicate refining margins will peak in August before normalizing toward 0.16 euros per litre by late 2027.