Saudi “shock absorber” fails! Energy system reconstruction may take 10 years, diesel shortfall of 3 million barrels per day, US refineries unable to fill the gap

Saudi Arabia’s longtime role as the “shock absorber” of the global oil market is coming to an end. According to the latest assessment by renowned energy analyst Karl Miller, the rebuilding cycle of the Gulf energy system has been dramatically extended from the previous five years to 2033–2036, requiring capital of $550 billion up to $2.28 trillion. Meanwhile, global diesel and jet fuel supply gaps start from a baseline of three million barrels per day and could widen further, and the U.S. refining system is simply not large enough to make up the shortfall.

Miller believes: Saudi Arabia can no longer play the buffer nation. Previously, when access through the Strait of Hormuz was blocked, Riyadh could still use the east-west oil pipeline to ship crude oil westward to the Yanbu port in the Red Sea, maintaining at least some exports. However, this “lifeline” has now itself become a target. In September, drone attacks paralyzed large sections of the east-west pipeline pumping stations. On October 4, the Khurais pumping station east of Riyadh was hit for the first time, causing the pipeline to stop again.

The direct impact falls on refined products rather than crude oil. Miller’s baseline remains a global shortage of at least three million barrels per day of diesel and jet fuel. If one million barrels/day of crude oil cannot reach operating refineries, the loss of diesel and jet fuel would range from about 300,000 to 450,000 barrels a day. The baseline gap could thus rise to 3.5 million barrels a day, with an additional 15 million barrels of shortage each month.

The U.S. is also unable to plug this gap. For the four weeks ending October 2, U.S. refineries produced an average of about 5.17 million barrels per day of distillate fuel, including 1.56 million barrels exported and 3.77 million barrels for domestic use. For the U.S. alone to fill the 3 million barrel/day gap, distillate output would need to increase by 58%. Yet U.S. production is only about 150,000 barrels/day higher than a year ago—barely 1/20th of the global gap.

Rebuilding cycle extended to seven to ten years, key equipment must wait seven years

Miller has extended the time frame for the Gulf energy system’s reconstruction from five years to seven to ten years (2033–2036). Certain capacities may recover earlier, but “complete and reliable operation will not.” The limiting factor is equipment: large compressors, turbines, high-voltage transformers, specialized pressure vessels, and integrated control systems are all custom-built and cannot be picked from a warehouse. The critical path to replacing a set of key equipment is up to 84 months—one year to evaluate loss and arrange design funding, three years for procurement and manufacturing, two years for delivery and installation, and one year for testing and stabilization. Site security, funding gaps, factory schedules, and repeated attacks could drag this on by up to three more years.

The capital requirements are similarly staggering. Miller models three scenarios: controlled at $550 billion, central at $1.2 trillion, and severe at $2.28 trillion. In the central scenario, $180 billion must be injected in the first two years, with another $540 billion over years three to five, averaging more than $170 billion per year for seven years. Gulf countries will compete for the same group of manufacturers, engineering firms, construction plants, and specialist teams—if Kuwait or Qatar snap up a transformer production slot, Saudi Arabia will get one less.

Diesel and jet fuel gaps may continue to widen from 3 million barrels/day

Previously, markets focused on crude supply disruptions, but Miller reveals a deeper structural gap: his baseline remains a global diesel and jet fuel shortage of at least three million barrels per day, and attacks on Saudi Arabia could push this higher. The key is the transmission path—if crude oil cannot reach refineries, what is lost is not just the crude itself, but also the diesel and jet fuel that could have been refined from it. Simply increasing crude exports cannot alleviate the pressure in the refined oil market.

For the four weeks ending October 2, U.S. refineries produced an average of about 5.17 million barrels per day of distillate fuel, including 1.56 million barrels exported and 3.77 million barrels for domestic use. For the U.S. alone to fill the 3 million barrel/day global shortfall, distillate output would need to increase another 58%. Yet U.S. production is only about 150,000 barrels/day higher than one year ago, or nearly 1/20th of the shortage. Miller bluntly notes that promising more exports cannot conjure up additional fuel and will only transfer shortages from one buyer to another—while further draining U.S. inventories.

The shock has already spread to grain prices, freight, and flights

The fuel crisis has already affected the real economy. Grain prices are up 17.2% year-on-year; farmers need diesel before selling their harvest, truck drivers need diesel to settle their bills, cold storage cannot afford disruption before food hits the shelves, and airlines need certified jet fuel—which cannot be replaced by diesel. Miller warns that the most vulnerable buyers—nations lacking foreign exchange and credit—will not merely pay more, but will be completely squeezed out of the market.

Signs of economic deterioration in Saudi Arabia have already appeared—oil activity dropped a quarter in Q2 and GDP shrank 4.8%. As Miller says, the recovery can only be proved by the actual delivery of fuel, not by Washington’s announcements of repairs or by nominally lower oil prices.