Major oil companies are reporting record profits in the second quarter of 2026, with the closure of Iran's Strait of Hormuz and geopolitical disruptions creating unprecedented opportunities for the industry. According to reporting from Washington Monthly, Chevron posted its highest quarterly profits ever, BP's profits more than doubled year-over-year, and Exxon doubled its year-over-year earnings despite losing 10 percent of its upstream production. These three firms alone generated average daily oil profits exceeding $400 million, as cited by NPR.
However, the most significant driver of elevated consumer fuel prices is not crude oil scarcity alone, but rather a structural bottleneck in global refining capacity. While crude oil prices have risen 28 percent from the start of 2026, gasoline prices have surged 51 percent over the same period, indicating that refiners are passing through input costs while applying substantial markups. Refining margins have reached historic levels.
BP's refining margin, for example, expanded from $12 per barrel in 2025 to $30 per barrel in the second quarter of 2026, and has climbed to $42 per barrel in the third quarter. The benchmark 3-2-1 crack spread, which measures the price differential between three barrels of crude and outputs of two barrels of gasoline and one barrel of diesel, has soared from the $25-$30 per barrel range in early 2026 to peaks of $72.22 per barrel. For context, the highest level reached in 2022 following Russia's invasion of Ukraine was $54.34 per barrel, according to data from RBN Energy accessed on August 13, 2026.
The root cause of this refining crisis stems from geopolitical disruptions that have systematically removed global refining capacity from service. Iran's retaliatory strikes on oil and gas infrastructure in the Gulf have reduced Middle Eastern refinery output by 27 percent year-over-year, according to commodity intelligence firm Kpler. Simultaneously, Ukraine's drone campaign against Russian refineries has been so effective that it may transform Russia from a net exporter to a net importer of fossil fuels.
Between the Iran and Ukraine conflicts, nearly nine percent of global refining capacity is currently offline, as reported by Reuters. This refining capacity deficit has become the binding constraint on fuel supply. The International Energy Agency Executive Director Faith Birol noted that refinery activity and product supplies have not increased proportionally with crude deliveries, meaning markets for refined oil products including diesel and gasoline are considerably tighter than crude markets.
U.S. refineries have already reached the limits of their capacity, running near full utilization throughout the summer. ExxonMobil CEO Darren Woods acknowledged that "these high margins lead to high product prices, which we also know has a significant impact on consumers," but with the company operating at 97 percent utilization, additional production increases are constrained by physical infrastructure limits. The fundamental problem is that U.S. refining capacity has contracted significantly over recent decades.
The number of U.S. refinery facilities has declined from 301 in 1982 to 130 in 2026, with total refining capacity down by 1.2 million barrels per day since 2019, according to Forbes. The implications for policy are substantial. High gasoline and diesel prices will not normalize simply when the Strait of Hormuz reopens.
According to RBN Energy forecasts, refined product exports from the Middle East will not return to normal until the end of 2027 given the extent of infrastructure damage, and Russian refinery operations will remain severely constrained until hostilities cease. The article advocates for immediate policy intervention rather than a "wait and see" approach. Proposed solutions include statutory price caps or windfall taxes on excess refining margins, similar to measures imposed by the United Kingdom and European Union following the 2022 energy crisis.
Rhode Island Senator Sheldon Whitehouse has proposed windfall tax legislation. Long-term solutions involve increased investment in renewable energy and electrification to reduce vulnerability to fossil fuel supply shocks and geopolitical disruptions. Source: Washington Monthly, article by Dylan Gyauch-Lewis, published August 14, 2026.
Source: washingtonmonthly.com