America closes refineries while the rest of the world races to build them

When Iran closed the Strait of Hormuz at the end of February, the world relearned a lesson it keeps forgetting: crude oil, by itself, moves nothing. Trucks, tractors, aircraft and ships run on diesel, gasoline, jet fuel and bunker fuel-transportation fuels that exist only after crude oil has passed through a refinery.

Asia felt the shock first. As crude supplies tightened, Asian refiners cut throughput and some curbed transportation fuel exports to protect their own markets. Even after the April ceasefire, tanker traffic through the strait remained far below pre-war levels.

Seven months later, Gulf crude exports are recovering, though many cargoes now travel longer and costlier routes. Diesel is not. In August, Gulf diesel exports were barely a quarter of pre-war levels, as refineries damaged in the war remained offline. In Russia, Ukrainian drone strikes have forced half of the country's six largest diesel refineries to cut or halt output, and Moscow has banned diesel exports. In February, the Gulf and Russia together supplied nearly half of the world's seaborne diesel. A damaged diesel unit cannot be replaced quickly, and the diesel capacity lost to war and refinery closures may take years to replace.

The ripple reached California. The state has spent years making refining harder. Two refineries have recently closed, and more of the remaining seven are expected to follow. The gap is filled by imports, much of it from Asia. California's policies did not reduce the state's demand for refined products. They simply moved the source of those products across the Pacific-and into the path of a crisis on the other side of the world.

The step that makes raw crude oil resources usable

Modern life demands thousands of products, from medicines and fertilizers to plastics, lubricants and transportation fuels. Most begin as crude oil, natural gas or coal, which must be refined, gasified or cracked before they can serve as feedstocks for manufacturing. Crude oil alone yields more than 6,000 products.

Natural resources have latent value. Processing is what makes that value usable. A nation that controls this step controls much of its economic future.

The developing world wants its own refineries

It is no surprise, then, that nations across Asia, Africa and the Middle East want refineries of their own. Rising incomes mean rising transportation fuel demand, and the Hormuz crisis has shown every importer the cost of depending on someone else's refinery.

Industry databases list roughly 180 new refinery projects announced or planned worldwide for this decade, about 70 of them in Africa. OPEC expects some 5.8 million barrels per day of new refining capacity by 2030, more than 90 percent of it in Asia-Pacific, Africa and the Middle East.

Announced is not built

Engineers know that a project announcement is only the beginning. A refinery must pass through planning, environmental assessment, permitting, financing, front-end engineering, construction and commissioning. Each stage is a filter.

One of us studied China's coal-to-gas sector during its boom a decade ago, when dozens of synthetic natural gas projects were announced. Years later, only four were in operation.

Refining is proven technology, so attrition will be far lower. But the lesson holds: count what is being built, not what is being announced. Even so, roughly half of expected capacity growth is already operating or under construction-several million barrels per day. The demand for refined crude oil is real and growing worldwide.

Who can build refineries?

The bottleneck is not ambition. It is capability.