Introduction
For much of the past two decades, Europe’s energy system has been shaped by efficiency. Supply chains lengthened as markets globalised, refining capacity rationalised as assets became uneconomic and the energy debate has been dominated by decarbonisation and the energy transition. This model delivered lower costs and reliable supply during a period of relative geopolitical stability.
Recent events have exposed the limitations of that approach. The loss of Russian supply, disruption in the Middle East and growing military requirements arising from the war in Ukraine have revealed an energy system increasingly exposed to external shocks. As Europe becomes more reliant on longer supply chains and security priorities shift eastwards, policymakers and investors must look beyond efficiency alone and recognise the strategic value of domestic refining, product storage and flexible logistics infrastructure.
Longer supply chains mean greater exposure
Europe’s energy system once benefitted from short and reliable supply chains. Russian crude flowed directly into Central and Eastern Europe via the Druzhba pipeline, whilst Russian diesel molecules moved into major Northwest European hubs via the Baltic Sea. The system was far from diversified, but it was a reliable and efficient supply route with relatively minimal exposure to global disruptions.
The Ukraine-Russia war has shattered this system. Sanctions on Russia saw Europe lose 20-25 mtpa of diesel imports, while the 2026 ban on fuels refined from Russian crude further disrupted Indian flows of processed Urals. At the same time, refinery outages in Russia and the Middle East have reduced available global refining capacity, with some assets expected to take 1-3 years to repair. European import dependence has therefore become more concentrated on a small number of players, with replacement cargoes now sourced from more distant origins that require longer voyages with greater exposure to maritime chokepoints.
A similar trend is evident with the jet market, with Europe remaining structurally short on jet and relying heavily on long-haul imports. Disruption in the Strait of Hormuz caused jet flows from the Middle East Gulf to collapse. ARA jet fuel inventories fell to 6-year[1] lows and NWE front month prices hit >$1500/t[2]. Swing supply emerged from the US and Nigeria, yet unplanned maintenance at Dangote refinery further exposed the risk of relying on nascent supply chains. This challenge becomes particularly difficult as Europe’s security priorities shift eastwards, placing greater pressure on supply chains that were not designed for this flow.
Europe’s security challenge is moving East
Europe’s energy security challenge is no longer defined by replacing lost Russian volumes. It is increasingly defined by ensuring fuel can be reliably delivered to new and strategically important demand centres.
Ukraine is the clearest example of this, with sustained Russian strikes having removed the majority of the country’s domestic refining capacity. This has left Ukraine almost entirely dependent upon imported products, with an estimated ~5 mtpa of additional refined products required. The continuation of the conflict is likely to sustain these requirements, whilst future reconstruction activity will create further demand for refined products.
The challenge extends beyond Ukraine. Europe’s security focus has shifted decisively eastwards, yet the continent’s fuel supply chains were not designed to support a prolonged military presence on its eastern flank. Infrastructure was built to move fuels efficiently from coastal import hubs and refining centres to major civilian demand centres, not to sustain growing military deployments and defence logistics across Central and Eastern Europe.
Existing military supply system designs further exacerbate this challenge. NATO’s largest integrated pipeline system, the Central European Pipeline System, only runs as far east as Neuburg in southern Germany. Beyond this, fuel distribution relies on road and rail transportation, which is slower and more vulnerable to sabotage.
As military mobility requirements expand and reconstruction needs grow, demand for diesel and jet fuel is increasing just as Europe becomes more reliant on long-haul imports. Meeting these needs will require more than logistics infrastructure alone, but also domestic refining capacity capable of quickly responding to regional disruptions.
Refineries matter again
Europe has spent much of the last two decades treating refinery rationalisations as a necessary consequence of paving the way for the energy transition. More than 15% of the region’s refining capacity has been lost since 1998, removing over 100 million tonnes of supply[3]. Shutdowns were driven by rational decision-making; weak margins, ageing assets and rising carbon costs that put pressure on refinery owners. What these economic decisions failed to capture was the positive externality of the strategic value of domestic flexibility.
The Strait of Hormuz crisis has displayed the value of the flexibility that refineries provide. YoY jet imports to mainland Europe fell by more than 50% between April & May 2026[4], following severe disruptions to flows out of the Middle East Gulf. With inventories plummeting, refineries played a critical role in supporting regional jet demand. Production pivoted towards jet yields as major European refineries wanted to capitalise on heightened prices and shortfalls in supply. Unlike swing cargoes that require lengthy voyages, domestic refining capacity can respond rapidly to regional disruptions and changing product balances.
The demand profile of refined products further promotes the need for strategic refining assets. Whilst gasoline demand will be eroded by electrification in the light-duty vehicle fleet, diesel demand is anchored in medium- and heavy-duty vehicles which are harder and more expensive to decarbonise. Whilst green hydrogen, synthetic fuels and alternative low-carbon pathways will reduce reliance on refined products, they are not short-term options. The resilience challenges facing Europe are immediate, whereas many of the low-carbon alternatives remain years or decades from being built to scale. To address these contemporary challenges, Europe must further consider how these inventories are held as well as produced.
Rethinking the strategic stockholding model
Europe’s strategic stockholding system was built around crude oil, with inventories held in remote locations given that refineries could process them into the desired products in times of need. That system reflects a model with ample refining capacity, shorter supply chains and less global volatility. These assumptions however are becoming increasingly outdated.
As a result, strategic stocks will need to pivot towards refined products, predominantly diesel and jet, where Europe remains structurally short. In times of crisis, the lag associated with processing crude into refined products can prove costly, particularly if distribution infrastructure is constrained. This development is increasing the commercial importance of strategic stocks, with well-located inland terminals and multimodal connectivity becoming critical to local energy resilience.
This creates strategic value for storage terminals in enhancing Europe’s energy resilience. The ability to quickly deliver finished products to end-users is becoming more important than in the previous supply system. Terminals integrated with airports, industrial clusters and military logistics corridors are likely to become increasingly important as policymakers place greater emphasis on operational resilience.
Conclusion
Europe’s existing strategic stockholding system rests on assumptions that are no longer prevalent today. Refinery rationalisations, severe global disruptions and longer supply chains have displaced this model. Security of supply is now less defined by the quantity of crude oil stored and more by how quickly refined products can be distributed to major demand centres.
The challenge facing policymakers is therefore not simply one of decarbonisation, but of ensuring the energy system remains resilient during a period of heightened geopolitical uncertainty. Whilst NATO has committed €27bn[5] to modernising fuel infrastructure, policymakers must also recognise the strategic value of the refineries, storage terminals and logistics networks that underpin Europe’s ability to withstand future shocks.
[1] Quantum Commodity Intelligence
[2] Bloomberg
[3] EFMA
[4] Vortexa
[5] NATO