A ceasefire may mark the end of a war, but that does not mean the end of the energy crisis it has caused. Karl W. Miller attempts once again to quantify a problem that a large portion of the market and analysts continue to treat as a temporary price spike. In his latest analysis, titled "The Five-Year Global Energy Crisis," Miller warns that destruction to Gulf energy infrastructure is not a disruption that will disappear as soon as hostilities cease. On the contrary, it represents a massive reconstruction program that will require years and trillions of dollars. And as long as this program is underway, the global economy will face shortages in the fuels that power transportation, industry, agriculture, and commerce.
A ceasefire does not restore energy infrastructure
Miller’s core finding is simple: a ceasefire can allow a maritime trade corridor to reopen almost immediately. However, it cannot build a compressor, mobilize specialized engineers, or fund a contractor. The next phase of the crisis, according to his analysis, will involve competition for funding, equipment, specialized personnel, and available production capacity. Cost estimates are exceptionally high. In the most aggressive scenario, restoring the Gulf energy system requires total funding of approximately $1.16 trillion. In the event of a prolonged crisis, with limited equipment availability, inflated prices, and delays, the cost could rise to $2.53 trillion. Even in the fastest recovery scenario, the bill approaches half a trillion dollars. Miller clarifies that these are model results rather than contractor bids, while the actual extent of the damage remains the largest unknown parameter. In April, a previous estimate had placed the cost of energy repairs at just $34–$58 billion. However, the main conclusion does not depend on the exact size of the bill. Every month of delay increases restoration costs, as the global market for specialized equipment and personnel is already under pressure due to LNG expansions, refinery maintenance, and energy projects in other parts of the world.
Reconstruction could take up to seven years
Equally concerning is the timeline. Based on cost weighting, reconstruction of the energy system is expected to take an average of nearly five years from today. Only 60% of the work will be completed by 2031, while projects with the longest lead times could require up to seven years. This means that even an immediate end to the war will not translate into an immediate recovery of the energy market.
Funding problems could delay reconstruction
One of the most compelling points in Miller's analysis concerns financing. A damaged refinery may be technically repairable and economically viable, yet remain out of operation because the controlling government must first meet basic needs, such as food imports, salaries, electricity, and water. The loss of export revenue does not pause these obligations. When a state is forced to borrow to keep covering them, those same funds cannot simultaneously be used to finance engineers, contractors, and suppliers.
The example of Iraq
Iraq serves as a prime example of this trap. In July, the Iraqi state's monthly payroll obligations stood at approximately $5.96 billion, while its funding gap reached $2.52 billion. A government in this position lacks the capacity to proceed with meaningful reconstruction. The priority is paying public workers, while restoring export capacity that could boost state revenues remains a secondary concern. Miller warns that this vicious cycle could halt reconstruction before it even begins. Without funding for engineering and down payments to suppliers, available manufacturing slots at factories are taken by other clients, pushing delivery dates further out.
The deficit in diesel and jet fuel spreads to the entire global economy
For the rest of the economy, destruction to energy infrastructure translates primarily into a shortage of diesel and aviation fuel. The figures cited by Miller are already deeply alarming. Net diesel exports from the Gulf in August stood at just over a quarter of pre-war levels. At the same time, combined diesel exports from the Gulf and Russia were lower by 1.6 million barrels per day compared to February. Global oil stocks had declined by 507 million barrels since February, while global refinery output in August was 4.2 million barrels per day lower than a year earlier. Under Miller's downside scenario, the global economy will face a deficit of at least 3 million barrels per day in diesel and jet fuel each year for five years. This corresponds to roughly 1.1 billion barrels annually, or 5.5 billion barrels over the full five-year period. Miller clarifies that this is an extreme-stress scenario rather than a forecast. In a faster recovery scenario, the deficit narrows by the fourth year. However, the downside scenario remains plausible. Restoring production capacity can be absorbed by refinery outages, delayed maintenance, demand recovery, and delivery bottlenecks. After all, a damaged refinery does not return to full capacity from day one of restart.
Inventories cannot cover a five-year deficit
Inventories are incapable of covering such a massive deficit for such an extended period. The 5.5 billion barrels calculated by Miller far exceed the available strategic reserves of any nation. For this reason, drawing down European stocks under pressure from Washington can offer only a temporary breather lasting a few weeks. Without adequate new supply, the market can restore balance only through fuel consumption destruction.
How fuel shortages affect prices
The economic impact extends far beyond the physical loss of barrels. When supply is insufficient, buyers compete for the last available cargo, and the price of that cargo ultimately sets the tone for the entire market. Miller uses a clear example: a $40 per barrel premium in markets of 10 million barrels per day adds approximately $146 billion annually to fuel bills. If the same premium applies only to the 3 million missing barrels, the additional cost amounts to $43.8 billion—a figure that, however, significantly underestimates the actual economic burden. Shortages simultaneously impact financing costs. At $150 per barrel, a buyer procuring 1 million barrels per day needs an extra $2.25 billion to maintain 15 days of inventory. At $200 per barrel, that requirement rises to $3 billion. Longer maritime routes also increase both fuel consumption and capital tied up during transit. A supplier may have the crude, but the buyer may be unable to secure a letter of credit. At the same time, a cargo that wins a tender in one country can leave another market facing an even greater deficit. Competition redistributes the shortage; it does not eliminate it.
Diesel transfers the crisis to the real economy
Diesel serves as one of the primary transmission channels of the energy crisis to the real economy. It is used in road transport, agriculture, mining, construction, and backup generators—activities that cannot easily switch to alternative fuels. Higher diesel costs feed directly into freight rates and food prices. However, when diesel is unavailable even at a high price, economic activity simply comes to a standstill. The impact on air transport is similar. Higher jet fuel costs lead to more expensive tickets, fewer routes, and elevated charges in air freight. Heating oil particularly hits households with limited room for adjustment, primarily in countries where it is still used for heating, cooking, and lighting.
Which regions are most exposed
Miller's regional analysis highlights varying levels of vulnerability. Europe will have to compete for available cargoes of diesel and jet fuel while its refineries are already operating close to capacity limits. South and Southeast Asia face higher import bills, currency pressures, and an increased need for trade finance. Africa and smaller importers are even more vulnerable. Tenders may fail, credit lines may run out, and small cargoes could become economically unviable long before global inventories are fully exhausted. Meanwhile, the US and other Atlantic suppliers face rising demand for exports, competing directly with their own domestic diesel needs. Refineries are operating at such high rates that they retain minimal buffer against unexpected outages. The ultimate balancing mechanism is so-called demand destruction. Transport is postponed, low-margin factories shut down, flights are canceled, and poorer nations lose out in fuel purchase tenders. Miller warns, however, that this should not be mistaken for a recovery. Lower consumption caused by high prices or lack of financing does not mean the energy system has been restored.
Europe: Energy dependence changes hands
Europe stands out as a prime example of how the crisis is evolving. The Old Continent consumes roughly 5 million barrels of diesel per day. This is the fuel that moves cargo trucks, powers agricultural tractors, and, as winter approaches, fires the boilers heating millions of homes. At full operations, EU refineries can produce approximately 4.5–5 million barrels of diesel and gasoil per day and are already running near maximum capacity. This means Europe is, at best, around 85%–90% self-sufficient. The remaining 10%–15% relies on imports, and this small margin is enough to dictate pricing across the whole market. Kpler estimates that EU diesel imports from non-bloc countries stand at around 580,000 barrels per day this year. Britain is even more exposed, having lost a significant portion of its refining capacity over the past two decades, and now imports more than half of the diesel it consumes.
From Moscow to Washington
The origin of European imports has shifted dramatically. Russia was Europe's largest external supplier for years until the implementation of the European embargo on Russian diesel in 2023. The Gulf filled a major portion of that gap until war restricted that source as well. Since March, the US has supplied more than half of Europe's diesel imports. In August and September, that share exceeded two-thirds. Thus, Europe replaced its reliance on Moscow with reliance on Washington. And Washington has already shown a willingness to leverage that influence, threatening export bans unless Europe releases its strategic reserves.
Europe also depends on imported crude
Europe's reliance is not limited to diesel. European refineries operate almost exclusively on imported crude, as the EU imports approximately 97% of the oil it consumes. However, the Gulf was never Europe's primary crude supplier. In 2025, Gulf Cooperation Council states met roughly 7% of EU crude imports, while Iraq accounted for an additional 5.8%. Today, European crude originates mainly from the US, Norway, and Kazakhstan. Together, these three countries accounted for nearly half of EU oil imports during the second quarter of 2026. While volume remained steady, the import bill jumped by 56%. The problem is that the crude Europe buys today is not ideal for much of its existing refining infrastructure. A significant share of European refining capacity was designed around medium, high-sulfur crudes such as Russian Urals. These units are configured to convert the heavier portion of the barrel into diesel. US shale oil is light and sweet (low-sulfur). It refines easily into gasoline and naphtha, but yields proportionately less diesel and jet fuel—the very products where Europe currently faces a shortage. As Miller points out, high-sulfur crude is not an absolute prerequisite for diesel production. Substitute barrels can be processed, but not with the same efficiency or cost profile. The actual supply Europe lost from the Gulf was finished diesel from local refineries. And that is the exact product the US stepped in to replace. The result is a dual dependence: Washington is now the top supplier of both the crude processed in European refineries and the finished diesel those refineries cannot produce in sufficient quantities. Even non-US supplies carry risks. The majority of Kazakh oil reaches Europe via a Black Sea terminal in Novorossiysk, on Russian territory. This is a transit route that has already been targeted by Ukrainian drone strikes.
European diesel reserves are not as secure as they seem
At this juncture, Europe's apparent "safety cushion" proves smaller than it appears. Unlike crude oil, which can be stored in underground salt caverns for decades, diesel degrades over time. Under ideal conditions, conventional ultra-low sulfur diesel can be stored for six to 12 months. Using stabilizers, biocides, and proper tank management, that period can be extended to 18–24 months. Oxidation generates gums and sediment, water accumulates, and microorganisms grow within the fuel. There is an additional complication for Europe. The European EN 590 standard allows up to 7% biodiesel in road diesel, and biodiesel oxidizes much faster than petroleum diesel. Concawe, the research association of European refiners, recommends a maximum storage period of six months for biodiesel and blends containing it. Strategic reserve managers can extend shelf life by holding neat product without biodiesel. Even then, however, stock must be rotated, released to the market, and replenished with fresh fuel on a one- to two-year cycle.
Strategic reserves cover just two months
EU countries and Britain held roughly 52 million metric tons of gasoil and diesel in June, of which nearly 38 million tons were emergency stocks. This represents about two months of consumption. However, a diesel stock is not a volume that can be purchased once and left in storage for years. It requires continuous replenishment. That means continuous buying in a market already experiencing severe tightness. Every barrel released today to appease pressure from Washington will eventually need to be replaced, likely at a higher price, from suppliers already facing tight supply. Meanwhile, diesel degradation means Europe cannot solve its problem by buying vast quantities when prices are low and holding them for years. A reserve with a shelf life of one to two years cannot bridge a structural deficit that, under Miller's downside scenario, lasts for five years.
Europe is particularly vulnerable
The outlook for Europe is particularly grim. The Old Continent produces most of the diesel it needs, but lacks spare refining capacity. It relies on imports for the marginal volumes that set prices across the entire market, and those imports now come mostly from a single supplier that has already demonstrated a readiness to use energy dependence as leverage. At the same time, strategic reserves are finite and cannot be maintained indefinitely. Based on Miller's analysis, Europe is among the buyers most exposed to marginal market cargoes, while simultaneously having the least capacity to endure a five-year deficit.
The global economic cost of the energy crisis
Overall, Miller's analysis describes a global economy facing a prolonged supply shock rather than a transitory energy disruption. Fuel costs impact virtually every facet of economic activity. This implies that central banks seeking to curb inflation sparked by the energy crisis may face persistent inflationary pressures for much longer than anticipated. Emerging economies dependent on fuel imports face a particularly dangerous combination of high energy bills, weakening currencies, and tightening credit conditions. Historically, such a mix has triggered debt crises and social unrest. At the same time, the reconstruction process itself will absorb capital, equipment, and skilled labor that could otherwise be directed toward new energy projects. Thus, the energy crisis risks delaying the very investments required to bring it to an end.
The end of war does not mean the end of the energy crisis
Miller's strategic conclusion is perhaps the message policymakers are least eager to hear. Ending conflict removes one source of disruption, but it does not repair the energy system. Restoring infrastructure requires a lengthy process involving financing, engineering design, equipment manufacturing, repair work, and ultimately, plant commissioning. This process will take years. Until it is complete, the availability of reliable fuel and the capacity to finance purchases will dictate which economies can absorb the cost of the crisis. And that burden will not be distributed equally. Stronger economies will compete for available cargoes, while weaker ones face higher prices, restricted access to credit, and ultimately, forced demand destruction. In other words, even after hostilities cease, the energy crisis may continue to dictate prices, inflation, and economic outcomes for years to come.
www.bankingnews.gr
Readers’ Comments