Fuel prices as a barometer of conflict in the Middle East: what Ukrainian drivers should prepare for

Israel’s operation against Iran, which hit key military and infrastructure facilities, had an immediate impact on the global oil market. The reaction of quotations was quick – world prices began to rise even before the official confirmation of missile strikes, which immediately affected the situation with gasoline in Ukraine. Over the course of several days, large national operators increased its price by 2 hryvnias per liter, while diesel became more expensive by about 1 hryvnia. This growth occurred against the background of the absence of internal changes in the tax or currency policy of our country, which indicates the dominance of external factors. Currently, it is important to assess whether price growth will continue in the short- and medium-term perspective, what scenarios are likely and what factors may influence further price dynamics — both in the direction of restraint and in the direction of a new increase.

Prices react to missiles: how the strike on Iran hit Ukrainian gas stations

Geopolitics once again directly touched the wallet of the Ukrainian consumer. On the night of June 13, Israel launched a missile attack on facilities in Iran, which was immediately reflected in the world oil markets. Already by the evening of the same day, Brent oil futures rose by $4.87, reaching $78.15 per barrel. This is the sharpest daily increase since March 2022 — the period when Russia’s full-scale war against Ukraine began. American WTI rose in price even more — by $4.94 to $72.98 per barrel.

Such a sharp increase was caused not so much by the strike itself, but by fears of a possible escalation of the conflict in the region, where almost a third of the world’s crude oil production is concentrated. In particular, market participants actively discussed the risks to the functioning of the Strait of Hormuz, through which more than 18 million barrels of oil from Iran, Saudi Arabia, Iraq and Kuwait pass every day. This channel is critical to the global energy supply, and even a short-term disruption in its functioning can cause panic among traders.

Although Iran soon declared that the oil infrastructure was not affected and confirmed the continuity of exports, this was not enough to completely neutralize the price spikes. Additional risks remain: the blockade of Hormuz could worsen Iran’s relations with China, the main buyer of Iranian oil, on which the country’s economy largely depends.

These signals immediately began to be incorporated into domestic fuel prices in Ukraine. Thus, on June 13, wholesale prices for diesel fuel in Ukraine increased by UAH 1.75/l (to UAH 43.97/l), which was an abnormally fast growth of 4% in a week. And this is without taking into account the inertial effect of logistics chains, which may manifest itself in the coming days.

It should be noted that on the foreign markets to which the import of fuel to Ukraine is tied, not only the prices of oil, but also of the main oil products, increased. In particular, gas oil futures on the London Exchange immediately added $37.5 per ton to $690.60. Gas oil is one of the key components of diesel fuel, and its price dynamics is an important indicator for traders.

Despite the traditionally strong attachment to the global market, the current price increase in Ukraine occurred somewhat prematurely. Large chains such as OKKO, WOG, BRSM, Socar, UPG and others raised retail prices as early as June 13-15, although there is usually a certain lag between the wholesale and retail markets. In particular, over the weekend, gasoline and diesel at OKKO and WOG increased in price by an additional UAH 1/l — the total increase for the week reached UAH 2/l for gasoline.

So, for example, in the Kyiv region as of June 18, the average retail price of A-95 gasoline was UAH 56.47/l, while on June 13 it was UAH 54.97. During this period, the price of diesel rose from UAH 51.97 to UAH 53.47 per liter. Gas remained stable at the level of UAH 34.22, although its average range by gas station is from UAH 31.45 to UAH 36.99.

At the same time, the market recorded a slowdown in the import of diesel fuel: in June, its volumes fell by 19.1% compared to the same period in May. The average daily supply rate decreased by 24%, which indicates possible difficulties in ensuring a stable resource in conditions of external tension. At the same time, although the import of gasoline has picked up a bit, it is still inferior to the May figures — minus 17.1% in the first week and a half of June.

When price reacts faster than events: what really pushes fuel up

These numbers point to several important risks. First, the decrease in import rates against the backdrop of rapid growth in wholesale prices creates the conditions for further price increases. Second, traders are trying to price potential risks of the conflict in the Persian Gulf, even if there is no direct impact on supplies at the moment. Thirdly, the domestic market reacts not only to the actual supply conditions, but also to the sentiments that are formed in European hubs and ports.

The situation on the Ukrainian fuel market demonstrates deep sensitivity to external factors, even in cases where they do not yet have a direct impact on the physical volumes of supplies. The decrease in the rate of import of diesel, which was observed during the first two weeks of June (minus 19.1% compared to the same period in May), against the background of rising prices for raw materials, creates deficit pressure. At the same time, the average daily supply indicators decreased by a quarter, which is a serious signal for traders and analysts, since it is imports that play a key role in the Ukrainian balance of oil products.

At the same time, the current market behavior of companies indicates increased nervousness. All major networks simultaneously raised prices already in the first days after the rise in global quotations. This is a reaction not only to the situation at European hubs, where the price of A-95 gasoline in the ports of North-Western Europe rose to $751/t, but also to forecast expectations. Uncertainty about the consequences of the conflict between Israel and Iran pushes traders to pre-emptively place risks in the price. This is a margin protection strategy that is typical of an import-dependent market, but at the same time leads to a premature rise in retail prices.

The discrepancy in the behavior of prices for different types of fuel deserves special attention, while autogas remains an exception in this wave of price increases. Its average price remains stable within 34.22 hryvnias/l, despite the general trend. There are several reasons for this. First, the seasonal decrease in demand — in the summer, the load on this market segment decreases. Secondly, the supply of autogas currently exceeds the demand, which ensures price stability. Thirdly, unlike gasoline and diesel, the autogas market is less sensitive to fluctuations on world exchanges, since in Ukraine it is mainly formed through long-term contracts and domestic supply.

However, even this balance may prove shaky if geopolitical tensions turn into a long-term armed conflict with threats to the Strait of Hormuz. About 20% of all world oil exports pass through this route. Its partial or complete shutdown will not only reduce global supply, but also increase speculative pricing pressure at all stages of the logistics chain — from the refinery to the gas station.

It is also worth considering the internal factor: shelling of Ukrainian energy infrastructure, in particular the strikes on Kremenchuk on June 15, can complicate logistics and supply within the country. This attack became one of the largest in the city in the last year. According to local sources, at least 30 explosions were heard, and agricultural and energy infrastructure facilities were among the targets. Although there is no official confirmation of damage to the oil refinery, the very fact of a repeated attack on Kremenchuk, where Ukraine’s largest refinery is located, raises the level of systemic risk for the stable supply of petroleum products.

The destruction or disruption of domestic production facilities may further increase Ukraine’s dependence on imports. However, isolation from own production in conditions of external turbulence significantly reduces the stability of the market and opportunities for operational maneuvering. At the same time, the prices of light oil products in Europe are correlated with the prices of crude oil, so the further dynamics of Brent and WTI will inevitably be reflected in the purchase cost of resources for Ukrainian traders.

What will happen to oil prices in the world and what to expect in Ukraine in the near future

Iran continues to produce about 3.3 million barrels of oil per day, but the Strait of Hormuz is not blocked yet, so logistics has not been stopped yet. Official Tehran said that the oil industry was not affected, and this partially cooled the emotional reaction on the stock exchanges.

The second factor is the expectation of the US Federal Reserve’s decision on the key interest rate. A slowdown in global economic growth may prompt the Fed to ease monetary policy. If the rate is cut in July — earlier than expected — it will stimulate the economy and oil demand. However, a rate cut can push up inflation, and the rise in oil prices is an additional inflationary factor. Therefore, the market balances between two scenarios: demand growth due to a softer policy or its restraint due to inflationary risks.

The short-term outlook for global prices currently remains volatile. The scenario of a sharp jump is possible only in case of a new attack on the infrastructure or a real closure of the Strait of Hormuz. If that doesn’t happen, Brent could fluctuate between $74 and $78 per barrel in the coming weeks, with temporary deviations of $2 to $3 in either direction.

For Ukraine, such volatility means several things. The first thing is that prices at gas stations will not rise evenly, but in a wave-like manner. Second, even with stabilization of quotations at the level of 75 dollars, imported batches will arrive at more expensive prices. Taking into account the inertia of contracts and logistics, this will create grounds for further growth in gasoline and diesel prices. They have already increased by 1.5–2 hryvnias/l, and if external pressure persists, they will add another 2–3 hryvnias in the next 2–3 weeks. That is, by the beginning of July, we should expect a general increase of up to 5 hryvnias/l from the initial levels. At the same time, in the case of stabilization of Brent and the absence of force majeure, this increase will be the limit of the wave. At the same time, the situation is the opposite in the liquefied gas segment: retail prices continue to decrease due to high competition and weaker seasonal demand. However, the price of propane-butane began to rise in the group, which may soon affect the stability of this trend. The reaction of Ukrainian networks to the foreign market always precedes real interruptions and lags behind the rollback, so the decline after stabilization will be slower.

Import volumes are also decreasing: in the first decade of June, diesel imports decreased by 19%, gasoline – by 17%. This is a separate prerequisite for price appreciation even without external shocks. At the same time, wholesale prices, which form the basis for retail prices, are increasing. For example, the wholesale price of A-95 gasoline rose to UAH 48.22/l in just one week, and diesel to almost UAH 44/l.

The key difference in the current situation is that the fuel market reacts faster than the objective picture changes. This means that drivers in Ukraine are already paying more not because supplies have become more expensive, but because traders are anticipating potential risks. In this logic, the market lives in anticipation of shocks, not in their reality. At the same time, as already noted, it reacts with a delay in the opposite direction – prices decrease much more slowly, even when quotes fall.

So, the Ukrainian fuel market once again shows that it reacts not only to actual shifts in supply chains, but also to external signals. Prices rise in response to risks that have yet to materialize, and the import structure of the market makes it vulnerable to any changes in global forecasts. In such a system, fuel becomes more expensive before oil physically becomes more expensive — and becomes cheaper only when there is no other choice.

The fuel market in Ukraine is in a zone of increased volatility. Current prices have yet to reach a ceiling, especially if risk factors — both external and internal — persist or intensify. In such conditions, gas station operators act cautiously, including in their prices not only the current purchase price, but also possible shocks that may occur tomorrow.

In the coming weeks, global oil prices will remain in the zone of fluctuations, depending on the development of the conflict in the Persian Gulf region and the decisions of central banks. Ukraine, on the other hand, will receive the effect of the current quotations with a delay — in the form of higher prices for gasoline and diesel during the second half of June and the beginning of July. This creates a situation where the mark of 60 hryvnias per liter of gasoline can become a new reality much faster than consumers expect. At the same time, there are few restraining factors on the market, so it is important for the consumer to understand: if no new upheavals occur, price growth will gradually slow down over time, but will not disappear completely.