Eight months into the U.S.-Iran conflict that began in late February 2026, the Strait of Hormuz remains a restricted and dangerous chokepoint. Iranian attacks on commercial shipping have reached their highest levels of the war in October, with dozens of incidents reported and tankers still moving under U.S. naval coordination—often with AIS transponders off. While crude flows have partially recovered in some tracking estimates (roughly 70-80% of pre-war levels in certain weeks when including Gulf of Oman transfers and bypass loadings), refined product movements have been far harder hit. Shipping costs have soared, insurance and risk premiums remain elevated, and Brent crude has traded well above $100 a barrel amid ongoing volatility.Hormuz
The most consequential second-order effects are not just higher oil prices. They are exposing the fragility of years of deliberate capacity reductions in Europe and forcing governments to prioritize energy security—even when it conflicts with stated Net Zero timelines.
Germany’s Refinery Reversal and Chemical Industry Pain
Germany’s Economy Minister Katherina Reiche made the shift explicit this week. After meeting oil industry officials in Berlin, she announced the government would work to prevent further oil refinery closures, describing refining capacity as strategic infrastructure. “Whoever loses the refinery loses not only the supply for the gas station, but above all for the chemical complex,” she said.Bloomberg
Germany still operates 11 refinery sites with roughly 92 million tonnes per year of crude processing capacity. These plants supply not only fuels for road, air, and marine transport but critical feedstocks for the country’s vast chemicals and industrial sectors. Reiche and the Economy Ministry have framed preservation of this capacity as a “strategic priority” of industrial policy. Europe as a whole has already closed or converted roughly 30 of the roughly 100 refineries operating in 2009; Germany and its neighbors traded domestic value creation and supply security for import dependence.Tagesspiegel
That dependence has proven costly. Reiche noted that when Gulf deliveries failed in the spring due to the Hormuz disruptions, Europe lost about a quarter of its diesel and kerosene supply. Nearly half of current diesel imports now come from the United States—creating a new set of dependencies, higher prices, and risk surcharges. Germany has been without Russian pipeline gas and, since the post-Ukraine sanctions, without Russian oil products. Earlier this year Russia also halted Kazakh crude transit via the Druzhba pipeline to the critical PCK Schwedt refinery (majority Rosneft-owned and under German trusteeship since 2022), which supplies much of eastern Germany and Berlin. The combination of lost Russian volumes, restricted Middle East product flows, and years of prior capacity reductions has left the chemicals sector especially exposed.Wn
The policy response is pragmatic rather than ideological: maintain competitive domestic refining capacity while still expecting plants to gradually adapt for lower-carbon feedstocks over time. Closing more capacity now would simply accelerate import dependence at a moment when global product markets are tight, Russian refining has also been damaged by drone strikes, and alternative suppliers face their own constraints.
UK: North Sea Gas as “Homegrown” Security
The United Kingdom is making a similar calculation. In late October the government approved production at the Jackdaw gas field in the North Sea. Peak output is expected to raise UK domestic gas production by around 6%, with first gas flowing in time for winter. Officials have framed the decision explicitly in energy-security terms—“homegrown” supply that reduces reliance on imported LNG, which carries a higher emissions footprint and greater geopolitical exposure.The Independent
Energy Security and Net Zero Secretary Miatta Fahnbulleh approved the project while stating it remains compatible with the UK’s legally binding climate commitments and the goal of ending new oil and gas licenses. Accompanying the decision is a new Energy Wealth Fund, initially capitalized with £2 billion, that will channel North Sea tax revenues into renewables and low-carbon projects. Messaging from figures such as Andy Burnham has emphasized the practical question: Britain will continue to need oil and gas for years as a bridge; the relevant issue is where it comes from. Domestic production supports jobs, the balance of payments, and lower relative emissions compared with some imported alternatives, even as the longer-term direction remains toward net zero by 2050.The Guardian
Wider Second-Order Impacts and Policy Shifts
Similar adjustments are visible elsewhere. Asian importers—who take the majority of Hormuz crude and LNG—have accelerated diversification. Japan has extended financing to help regional partners secure non-Hormuz supplies; Thailand has moved to expand rooftop solar partly to reduce gas dependence; and buyers across the region are seeking long-term LNG from Canada, Mozambique, and other non-Gulf sources while increasing coal burn and renewable targets in the short term. Saudi Arabia and the UAE are fast-tracking bypass pipelines and terminal expansions (Yanbu on the Red Sea, Fujairah) so more volumes can avoid the strait altogether.Iisd
Refining capacity, not just crude barrels, has emerged as the tighter constraint. Europe can still source crude oil more readily than it can replace lost diesel, jet fuel, and chemical feedstocks. High freight rates, damaged or constrained Middle Eastern and Russian refining, and China’s prioritization of domestic needs have left product markets structurally tight even when crude flows partially recover. Fertilizer and petrochemical supply chains have also been disrupted, with second-order effects on agriculture and manufacturing.Kpler
The 2026 Hormuz crisis is not the first energy shock of the decade, but it is reinforcing a durable lesson: deliberate reductions in domestic fossil capacity without matching, reliable alternatives create vulnerability. Governments that spent years prioritizing rapid fossil phase-out are now treating energy security as a binding constraint. Germany is working to halt further refinery closures to protect its chemical industry. The UK is approving North Sea gas and calling it homegrown. Others are building bypass infrastructure, diversifying suppliers, and accelerating electrification where it is practical. These moves do not abandon longer-term climate goals, but they do subordinate pure Net Zero sequencing to the immediate requirement of keeping industry, transport, and households supplied in a world of contested chokepoints.
The Energy Realities Team, Dr. Tammy Nemeth, David Blackmon, and Stu Turley, will cover this live on YouTube, LinkedIn, Substack, and X Monday Morning at 9:00 AM Central US.
Sources and further reading
- Bloomberg: Germany Wants to Stop More Oil Refinery Closures as Costs Mount
- Tagesspiegel / German coverage of Reiche’s statements on strategic refinery capacity and import dependence
- UK government and OEUK materials on Jackdaw approval and North Sea energy security
- Kpler, UKMTO, Lloyd’s List, and UANI tracking of Hormuz attacks, flows, and shipping status (October 2026)
- Euronews and industry analyses on Europe’s refining capacity loss since 2009 and product import exposure
Energy security has moved from a secondary consideration to a primary driver of near-term policy. The second-order costs of ignoring it are already visible in refinery margins, chemical feedstock prices, and national strategies across Europe and Asia.
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